MENU

3 Top Dividend Stocks to Grow Your Retirement Income

Investing in dividend stocks is a proven way to earn a steady stream of income when you’re in your golden age. But before you get there, you need to do a couple of things right.

First, you need to make savings for retirement one of your top priorities. Without the meaningful contributions to your savings, it’s unlikely that you will be able to build a retirement fund which could generate sufficient income for you.

I think a retiree with a reasonable lifestyle can live off a million-dollar retirement portfolio which generates a 4% rate of return with no mortgage burden.

Financial advisors usually advise retirees to withdraw only 4% of their nest egg per year to avoid depleting their funds and running out of money. So, if you end up with $1 million by the time you retire, only $40,000 per year can be withdrawn.

The second important factor to have a comfortable retirement is that you need to invest in quality stocks that pay regular dividends. Some savers hate stocks because of the risks involved with equity investing.  But that risk-free approach won’t get you there when the rate of return on savings accounts, GICs, or the government bonds is less than 3%.

That’s not the kind of return you’ll need to have a retirement life free from financial worries. A diversified portfolio with a good representation of dividend-growth stocks is a much better option for retirees.

Investing in dividend stocks 

Stocks such as BCE Inc. (TSX:BCE) (NYSE:BCE), Fortis Inc. (TSX:FTS) (NYSE:FTS), and Royal Bank of Canada (TSX:RY) (NYSE:RY) are great retirement investments if you have a long-term horizon.

These companies have been rewarding their investors for many decades with dividends. This predictability only comes from investing in businesses that have wide economic moats.

In simple words, companies that have huge competitive advantages are the ones that can ward off competition and continue to generate cash flows for their investors.

BCE, for example, is the largest telecom operator in Canada and has been sending dividend cheques to its investors for more than a century. With a dividend yield of 4.8%, BCE is the kind of stock you can count on for your retirement.

Fortis  is another dividend stock that pays stable and growing dividends to retirees. Fortis is one of the largest utilities in North America with a diversified customer base. The company has hiked its dividend each year since 1972. With a dividend yield of 3.7%, Fortis offers stable income potential to retirees.

Finally, Royal Bank of Canada has been a favourite dividend stock for retirees. Canadian banks distribute between 40% and 50% of their income in dividends each year. Investors who’d bought $10,000 worth of RBC’s stocks 20 years ago have seen their investments grow 10-fold to $100,000 today if they re-invested all of their dividends.

3,985 stocks listed between the TSX & TSXV, but here are the 5 we’d buy right now!

Overwhelmed by how many public companies there are to choose from in Canada? Motley Fool Canada Director of Research Iain Butler has you covered. Once a month, Iain and the rest of our team at Stock Advisor Canada reveal their five favourite Canadian stocks for new money now.

Considering they’ve walloped a “stuck in the mud” TSX by 10% over the past 4 years with truly life-changing winners like Shopify (up 236%, more than tripling your money), you’ll probably want to have your front-row seat reserved when our next five “Best Buys Now” are released – exclusively on behalf of Stock Advisor Canada members.

To make sure your name is on the list, just click here now... before the curtain is lifted without you.

Fool contributor Haris Anwar has no position in any stocks mentioned.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.