Retirees: Don’t Make Drastic Portfolio Changes in Response to Rising Interest Rates. Buy These Canadian Favourites Instead

Canadian Utilities Limited (TSX:CU) and Canadian REIT (TSX:REF.UN) are two undervalued, low-volatility, high-income plays that retirees should consider as we head into what could be a more volatile 2018.

| More on:
retired life

It’s a tough time to be an income investor, especially retirees who are looking to batten down the hatches in preparation for market volatility that could pick up as we head into the new year. Many pundits are worried that the recent crypto-craze surrounding Bitcoin and the like will cause a market-wide panic at worst and a spike in volatility at best. There’s no question that we’re overdue for a correction, especially since many would agree that we’re in the late stages of one of the longest bull runs in history.

It’s clear that conservative income investors like retirees are no fans of volatility, but the biggest concern for these investors probably isn’t rising volatility, but rising interest rates. Over the next year, more rate hikes are probably in the cards, and that’s bad news not just for heavily indebted households, but for investors in higher-yielding securities like REITs, utilities, and telecoms.

For many retirees, these three asset classes comprise a huge chunk of their portfolios, and unfortunately, there’s no way around it: rates are going up, and total returns for conservative income investors probably won’t be as attractive as they were in the past.

So would it make sense to opt for higher risk, higher reward income investments? Although it may seem tempting for retirees to give themselves a raise by opting for such securities, it’s important to remember that preservation of capital should be the number one priority. That means sticking with stable income payers and not taking risks, since substantial losses could jeopardize a retirement.

REITs, utilities, and telecoms still offer the stability that few other high-yield securities can match. While it’s still possible to have your cake and eat it too, many retirees would be better off not making drastic changes to their portfolios to adapt to a rising interest rate environment. Instead of selling, it may be a wise decision to go bargain hunting for unfairly beaten-up REITs, utilities, or telecoms.

Consider Canadian Utilities Limited (TSX:CU) and Canadian REIT (TSX:REF.UN), two solid conservative income investor favourites that are down ~14% and ~10%, respectively, from their all-time highs. Both stocks are boring, but stable and trading at discounts to their intrinsic values.

Both Canadian Utilities and Canadian REIT have P/E, P/B, and P/S multiples that are considerably lower than their respective five-year historical averages.

In addition, both securities yield close to 4% and have hiked their dividends/distributions consistently through the years. If you’re looking for stability, value, and a high yield, then look no further than these two Canadian gems that appear to be custom tailored for retirees looking for a safe house from market volatility.

Stay hungry. Stay Foolish.

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 Joey Frenette has no position in any of the stocks mentioned.

More on Dividend Stocks

ways to boost income
Dividend Stocks

This 3.8% Monthly Payer Is the Ultimate Sleep-Well-at-Night Stock

Restaurant Brands International (TSX:QSR) stock may not be exciting, but it can help solidify your income portfolio this summer.

Read more »

dividends can compound over time
Dividend Stocks

The 6% Dividend That Compounds Your Wealth Every 30 Days

This TSX royalty stock pays monthly and is backed by hundreds of pizza restaurants.

Read more »

A woman shops in a grocery store while pushing a stroller with a child
Dividend Stocks

1 Consumer Staples Stock That Thrives in Any Economy

Backed by consistent sales and smart expansion, this top consumer staples stock proves why essential businesses can offer stable gains…

Read more »

Dividend Stocks

1 Magnificent Canadian Stock Down 22% to Buy and Hold for Decades

This top TSX stock has increased its dividend annually for the past 29 years.

Read more »

Canadian Dollars bills
Dividend Stocks

How to Invest $250,000 in Canadian Dividend Stocks for $12,027 Each Year

Here's how to make the ideal portfolio to never worry about anything again.

Read more »

social media scrolling on phone networking
Dividend Stocks

I’d Put My Entire TFSA Into This 7.6% Dividend Giant

Telecom stocks can be risky these days, but this one offers up safety in spades.

Read more »

hand stacking money coins
Dividend Stocks

6% Dividend Yield? I’m Buying and Holding This TSX Stock for Decades

The earnings and cash flow of this Canadian company is likely to grow at a mid-single digit rate, driving its…

Read more »

Financial analyst reviews numbers and charts on a screen
Dividend Stocks

How to Build a $50,000 Portfolio That Can Weather Any Market Storm

With proper asset allocation and a long-term mindset, you can create a portfolio that’s resilient in downturns and capable of…

Read more »