Retirees often seek out high-yield dividend payers because they are a great way to add monthly or quarterly income. While historically, on average dividend payers outperform their non-dividend paying counterparts, simply choosing the highest yield dividend payers is not necessarily the wisest investment choice, particularly for investors in or near retirement. Just because a company pays a high dividend does not mean that the company’s stock will appreciate or that its dividend payments will continue.
The perfect dividend investment for retirees are those that pay a high yield, but have a sustainable dividend and whose stock value is likely to appreciate. It makes no sense to buy a dividend payer if you lose money on your initial investment. My top two picks for companies that meet these guidelines are Bank of Nova Scotia (TSX: BNS)(NYSE: BNS)and Fortis Inc. (TSX: FTS). Here is why.
Fortis is a North American electric and gas utilities company that pays a dividend with a 3.28% annual yield. The yield may not be a blockbuster, but it is a very good yield for a stable company in a stable industry, and furthermore it is a dividend that you can count on. The company has consistently paid dividends, for the past 41 years in fact, and has been really aggressive in hiking its dividends over the past few years.
In terms of stock performance, Fortis is a steady performer, with the company’s stock consistently appreciating over the years, and outperforming the major Canadian and American utilities indices. Part of the reason Fortis is a consistent performer is that the bulk of its business is in regulated industries, and this keeps earnings steady. This consistent share performance is another major reason why retirees should add Fortis to their portfolio.
Bank of Nova Scotia
Beyond being a solid dividend payer, Bank of Nova Scotia has some characteristics that make it an ideal stock for retirees. Compared to other financial stocks, Bank of Nova Scotia’s performance is more consistent. This is because the Canadian financial system is more conservatively run compared to many other banking systems around the world, and although not immune to financial slowdowns, it does not seem to suffer as much as the other ones around the world.
While the company’s stock did dip dramatically during the financial crisis, it also recovered quickly; the lingering effects that many other financial companies faced were not experienced here. Over the past 10 years the company’s stock has advanced by over 66%.
The company is based in Canada, and therefore has to meet Canadian regulations, but it is an international lender with operations around the globe. This also adds to the company’s stability, a diverse exposure means that the company can thrive during more varied economic times.
Bank of Nova Scotia is another great addition to retirees portfolios thanks to its dividend payments, and outlook for a steady stock performance.
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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 Leia Klingel has no position in any stocks mentioned.