Its tough to be a retiree in 2019.
Many older folks have done an excellent job setting up their finances for their golden years. They’ve fastidiously paid off their houses, consistently put money aside for retirement, and have even made sure their children got on the right path financially.
There’s just one problem: With interest rates near record lows, these folks are having problems converting their savings into a reasonable income stream. Five-year GIC rates are hovering near 2%, meaning a $1 million nest egg is only generating a pitiful $20,000 per year.
And remember, GICs pay interest. That’s fully taxable.
The better solution is to focus on dividend-paying stocks. Yes, individually these securities come with risk, but that can be mitigated by a diverse portfolio. It isn’t hard to maintain a very generous yield with a portfolio stuffed with some of Canada’s best high-yield stocks.
Putting just a portion of your retirement savings into high-yield stocks can pay important dividends. Here’s how dedicating just $100,000 of your nest egg into these three dividend payers can yield an extra $647 per month.
Gamehost
Gamehost (TSX: GH) is an Alberta-based casino operator that has been hit hard by the recent economic downturn that has hit the province. This is an excellent long-term buying opportunity.
Yes, earnings from Gamehost’s three casinos — located in Calgary, Fort McMurray, and Grande Prairie — are down over the last few years, but these remain profitable businesses. The company is on pace to generate approximately $0.70 per share in earnings in 2019, which gives the stock an attractive valuation of 12 times earnings.
Recent weakness in the stock price has boosted the company’s already succulent dividend yield. The current payout is $0.0575 per share on a monthly basis — good enough for a 7.8% yield. The payout ratio is currently around 100% of earnings, but that should improve as the Alberta economy recovers. And if that doesn’t happen for a little while, the company is sitting on a healthy cash balance that it can use to ensure the dividend continues.
Remember, Gamehost’s share price was 100% higher before oil’s decline hit the Alberta economy hard. Shares could easily recover to that level once things start to boom again.
Rogers Sugar
There are few businesses less exciting than sugar. This might not be ideal for a millennial investor, but it’s perfect for a retiree who is more concerned with protecting their capital.
Rogers Sugar (TSX: RSI) is in a comfortable duopoly atop the Canadian sugar market, sharing it with privately held competitor Redpath. The company also recently expanded into another sweetener, maple syrup. This move hasn’t really gone to plan; it has led to some disappointing short-term results.
The company has a solid plan to return the maple syrup business back to normal profitability, but it will involve some short-term pain. This has caused shares to decline approximately 10% over the last six months, which has created a good long-term buying opportunity.
Most of the return offered by the stock comes from its 6.5% dividend yield, which makes the security an excellent choice for a retirement portfolio.
Slate Retail
Slate Retail REIT (TSX:SRT.UN) invests in grocery-anchored real estate in the United States, focusing on medium-sized cities like Charlotte, Atlanta, and Denver. Slate’s portfolio features 79 different properties spanning more than 10 million square feet of gross leasable space.
The big draw of an investment in this particular stock is Slate’s succulent yield; the current payout is a robust 9%. You might think the payout isn’t sustainable, but that would be wrong. Slate pays out approximately 70% of its funds from operations and it has raised the dividend each year since debuting on the TSX in 2015.
Slate is also a really cheap stock. It trades comfortably under its net asset value, and the company has a price-to-funds from operations ratio of under eight times. This means there’s significant upside potential, which could push total return much higher.
Collect $647/month
$100,000 invested into these three stocks would yield an investor an additional $647 each and every month. That’s some nice cash flow, especially for a retiree. And the vast majority of your savings would still be locked up in secure GICs.
What are you waiting for? Give yourself a raise today.
