Canadian savers are searching for ways to set aside adequate cash to fund a comfortable retirement.
This has always been an issue for young people, but the challenge is arguably more difficult today than it was for the Boomers or even the older members of the GenX crowd.
Why?
Full-time jobs are harder to find right out of school, so it might be a few years before recent grads can finally secure a permanent position. When the ideal job does comes around, the benefits plan can vary significantly, especially when it comes to pensions.
Most companies have abandoned defined-benefit plans and now offer a defined-contribution program, which shifts the risk onto the shoulders of the employee, as the payments upon retirement depend on the return the portfolio generates. Under a defined-benefit plan, the company guarantees the payout — assuming the company doesn’t go bankrupt, that is.
Another change is centred around the way people work today. Many millennials prefer the flexibility of contract work, and the willingness to try completely different careers is probably higher than it was 20 or 30 years ago. Making one’s lifestyle a priority is great, but it means that people have to shoulder more responsibility for their retirement planning.
Finally, the option of using a house as a retirement safety net might not be as secure as it has been for the last two generations.
Fortunately, there are ways of setting aside some significant cash for your golden years. Owning top-quality dividend-growth stocks inside a TFSA is one such strategy.
Let’s take a look at Fortis Inc. (TSX:FTS)(NYSE:FTS) to see why it might be an interesting pick.
Attractive assets
Fortis owns natural gas distribution, power generation, and electric transmission businesses in Canada, the United States, and the Caribbean. The majority of the revenue comes from regulated assets, which means that cash flow should be both predictable and reliable.
The company has grown over the years through strategic acquisitions and organic development, and that trend continues. Fortis bought Michigan-based ITC Holdings Corp. for US$11.3 billion in 2016 and is currently working through a $15.1 billion five-year capital program that should boost the rate base to $33 billion.
Dividends
Management expects cash flow to increase at a steady pace, and is targeting annual dividend growth of roughly 6% through 2022. The company has raised the payout every year for more than four decades, so investors should feel comfortable with the guidance.
Fortis provides a yield of 4% at the time of writing.
Returns
Buy-and-hold investors have done well with the stock. A $10,000 investment in Fortis 20 years ago would be worth about $80,000 today with the dividends reinvested.
The bottom line
There’s no guarantee that Fortis will generate the same results over the next two decades, but the company should be a solid pick to start a TFSA retirement fund, and the strategy of owning quality dividend stocks and investing the distributions in new shares is a proven one.
