There are a number of items to consider before choosing stocks that can benefit your retirement. While there is never one sure-thing stock out there, there are certainly ones that can provide retirees with a long-term holding option that offers both passive income and growth.
After all, it’s your retirement! You want a stock that will continue growing, that you don’t have to sell all at once, and that will put some cash in your pocket to supplement your retirement savings.
If you’re looking to retire rich, it will likely take quite an investment, especially if you’re nearing the retirement age already. So, if you’re 50 years old and hoping to retire by 65, then that means you have 15 years to get rich. It might not be easy, but it’s not impossible. I would simply recommend investing in a stock like Canadian Pacific Railway (TSX:CP)(NYSE:CP).
Passive income
It’s ideal to give yourself at least 20 years if you’re looking for long-term passive income that can be reinvested into a stock. However, with only 15 years to go, you need an aggressive dividend stock. CP offers that with its 1.07% dividend yield that comes out to $3.32 per share per year, distributed each quarter. That dividend has increased 137% in the last five years, with an incredible annual average increase of 27%.
That cash is certainly a great start to reinvesting in your stock, but it also offers up a significant amount of passive income during your retirement as well. The average life expectancy in Canada as of 2016 is just over 82 years. That means retirees will get about 20 years of passive income after retirement.
Blue chip
Not only does CP offer a high dividend yield, it is also a blue-chip stock. That means CP is a large company that has proven itself to be well established and financially sound, with investors seeing growth for decades. These stocks also usually have a market capitalization in the billions, which CP also offers.
Blue-chip stocks should also be part of a high-quality industry, and a market leader in that industry if not a household name. CP can claim all of these things, being part of the railway industry where there is little to no room for competitors to edge in on its territory and sharing the top spot with only one other railway company. These points ensure that CP will be around for decades more.
A perfect buy
All this, and you’d expect CP to be trading far above fair value, right? Well, not at the moment. Even after hitting record numbers during its latest earnings report and hitting an all-time high of just under $324 per share, the stock has since come down to about $305 per share as of writing. With analysts putting its fair value at about $328, this share price offers investors a great opportunity to buy up this stock.
The company is also expanding its High Efficiency Product (HEP) train model, with five facilities currently being built across Canada that would allow producers to use the HEP trains this fall and more next spring. By the end of the year, CP will have 1,900 of these cars in service moving towards a total of 5,900. This means that after a large investment, shareholders should reap the rewards of CP bringing in more cash with lower costs for decades to come.
Keep it simple and get rich
If a 50-year-old and their partner took the $127,000 available to them in a Tax-Free Savings Account and invested in CP today for the next 15 years, here is how it would shake out with dividends reinvested.
| Number of Shares | 960.43 |
| Dividends Paid | $356,243.24 |
| Total Value | $755,842.42 |
| Annualized Return | 12.63% |
That leaves investors with three-quarters of a million dollars in just 15 years from a $127,000 investment. That leaves you with an annual income of $37,792.121 over the next 20 years from just this investment alone if you chose to sell all at once — or annual dividends of $3,187.20. It’s never too early to start thinking about retirement, and with numbers like these, you’ll want to start right now.
