Canadian investors approaching retirement should be wondering how to optimize their investments while protecting their initial balances. Nothing would be worse than having to deal with an expensive bill in a bear market and being forced to take a capital loss on a risky investment.
Canadian retirees who may need to dip into savings in the next five years should consider diversifying high-dividend stock investments with corporate bonds. Diversifying between stocks and bonds will increase the liquidity of your retirement portfolio. Corporate bonds have been climbing in value this year, and CIBC has been raking in those returns at 9% annual interest.
A buy into Methanex (TSX:MX)(NASDAQ:MEOH) stock and corporate bonds is a hard-to-beat option for your retirement portfolio. Methanex is a very profitable Canadian exporter of chemicals. Not only are its bonds increasing in popularity, but its stock has also been sending off strong buy signals after coming down from a price bubble.
Why invest in corporate bonds?
Sustained low-interest rates on government debt have been beneficial for the corporate bond market as investors look for better inflation-adjusted interest rates. If world federal reserve banks continue to push global interest rates lower, prices on corporate bonds may appreciate even during a bear stock market. Thus, Canadian retirees could increase the liquidity of their portfolios by diversifying between corporate stocks and bonds.
Methanex announced the sale of new 10-year senior unsecured notes last week which concluded on September 12. The chemical corporation issued the notes at 99.969% of the principal amount with an effective yield to maturity of 5.255%. You may have missed out on the initial offering, but you could still find some great deals on the secondary market.
Methanex debt is great, due to high yields, a solid B debt rating, and a stable outlook from Moody’s, Standard & Poor’s, and Fitch. Moreover, the company is in an exemplary financial situation with an adjusted EBITDA of $845 million and positive levered free cash flow of $176.69 million. Essentially, taking on additional debt is no problem for this prominent Canadian chemical corporation.
Combining Methanex debt with its stock in your retirement portfolio is an outstanding strategy. The share price of Methanex came down from a bubble this year to just over $50 per share – a loss in value of over 50% from a high of $107. Now is the perfect time to buy the stock as its dividend yield is 3.74% of its current market price.
Even better, Methanex’s dividend growth stands at a solid 9% as of the quarter ended June 30. Growing dividend payouts and strong financials bode well for the safety of this corporation’s stock and debt. Retirees should buy into both the debt and equities of this prominent Canadian exporter to secure the liquidity of their retirement portfolios.
Canadian savers should take a good look at their portfolios to see if there is room to add high-yielding corporate bonds. Diversification is vital during retirement – and fixed income is an excellent hedge against a volatile stock market.
In the case of Methanex, Canadian investors may have a matchless opportunity to reduce the risk profile of their accounts by investing in the corporation’s high-yielding debt and the stock’s growing dividends.
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Fool contributor Debra Ray has no position in any of the stocks mentioned.