The past few months have been an ugly reminder that big dividends can come with huge risks. Income investors have watched many of their long-term favourites get pummeled, especially in the energy sector, and many retirees are wondering where to turn for reliable income without the volatility.
Young investors with time on their side can ride out the current carnage in the commodity markets, but pensioners who need to have reliable sources of dividend income and protect their capital, can’t afford to wait out a 40% drop in the value of their portfolios.
Bank of Montreal
Canada’s oldest bank has paid a dividend every year since 1829. For retirees looking for reliable income, that’s about as consistent as you can get.
Bank of Montreal offers good earnings diversification right now with its large U.S. operations and growing wealth-management division. As the U.S. dollar continues to strengthen against its Canadian counterpart, BMO’s U.S.-based profits will help support earnings and boost the cash flow available for dividend increases.
This is important given the concerns around the Canadian housing market.
The bank pays a dividend of $3.12 per share that yields about 3.7%. The payout ratio is a modest 47%. The stock trades at a reasonable 13 times earnings, and has gained 58% in the past five years.
Telus is Canada’s fastest growing communications company and dominates its peers on several key metrics. The company boasts the lowest churn rate for postpaid mobile customers and has the highest blended average revenue per unit (ARPU) among the top mobile operators.
Telus also has a little-known health division that is growing rapidly. The group’s products enable medical professionals and their patients to safely exchange data over the Internet.
Telus is so confident in its earnings growth that it has committed to increasing the dividend by at least 10% per year through 2016.
The company pays a dividend of $1.60 per share that yields about 3.7%. The stock has risen 151% in the past five years.
Electrical utilities might be boring, but in the current environment, that’s exactly what income investors should be looking for. Fortis owns power-generation assets in Canada, the U.S., the Caribbean, and Central America.
The company just completed a $4.5 billion deal to acquire UNS Energy, an Arizona-based power company. The purchase will add significant cash flow in 2015 and investors should expect the long history of annual dividend hikes to continue.
Fortis pays a dividend of $1.28 per share that yields about 3.15%. The stock has gained 55% in the past five years.
These three stocks are a great start for building an income portfolio that won’t keep you up at night, but you might want to read the following report that discusses more options.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Andrew Walker has no position in any stocks mentioned.