Want to Live Off Dividends During Your Retirement? Invest in Royal Bank (TSX:RY) Stock

Royal Bank of Canada (TSX:RY)(NYSE:RY) stock can provide you with a strong, growing dividend over the years, and it can be a key part of your retirement plan.

| More on:
Happy retirement

Image source: Getty Images

Planning for retirement can be a little unnerving, because it’s difficult to know how much money you’ll actually need. The longer you end up living, the more uncertainty there will be about whether your savings will be sufficient to maintain the quality of life you hope to maintain. Even if you are able to grow your savings to $1,000,000, there’s no guarantee that’s going to be enough.

What can investors do?

The one way around this problem is to invest in dividend stocks. A stock like Royal Bank of Canada (TSX:RY)(NYSE:RY) that has a strong track record when it comes to not only paying dividends but increasing them as well can be crucial to your overall strategy. By holding RBC shares, it will give investors a recurring stream of income as long as they hold onto the shares. While there’s no guarantee that dividend payments will continue, RBC is a safe bet to continue to do so.

And the beauty of dividend stocks is that if the company continues paying dividends, that means you’ll get a payout as long as you own the shares. If you live longer than expected, that won’t matter, as you’ll still end up with a dividend. And if that dividend is held within a TFSA, it’s tax-free, and by benefiting from a growing payout, you’re also likely to be making a whole lot more than you are today.

RBC was paying quarterly dividend payments of $0.75 five years ago. Today, it’s paying $1.05 every quarter, which is an increase of 40%, for a compounded annual growth rate of around 7% per year. That’s a pretty strong rate of increase. Here’s how much you’d be making if you invested $63,500, the cumulative limit for a TFSA if you’ve never contributed, into the stock and held it for more than 20 years:

Year Annual Dividend
1 $2,516.04
2 $2,691.18
3 $2,878.51
4 $3,078.89
5 $3,293.21
6 $3,522.45
7 $3,767.65
8 $4,029.92
9 $4,310.44
10 $4,610.50
11 $4,931.43
12 $5,274.71
13 $5,641.89
14 $6,034.62
15 $6,454.69
16 $6,904.01
17 $7,384.60
18 $7,898.64
19 $8,448.47
20 $9,036.57
21 $9,665.61
22 $10,338.44

By year 22, you’d be earning more than $10K a year in dividend income, potentially tax-free if the TFSA remains intact during all those years. That added income can help give your cash flow during retirement a big boost. And if you invest more funds, then that dividend income could get even bigger. Not only will you be earning a lot more in dividends, but you’re likely to also benefit from a rising share price over those years as well.

Bottom line

It’s a relatively low-risk move to invest in RBC, and while it may not be the most exciting investment to make today, you could be thanking yourself for it years from now. Bank stocks are one of the best investments you can make because of how stable and predictable they are, especially compared to other stocks. For investors, it’s an easy way to invest for the long term and to ensure that your portfolio will grow over the years.

There can be a lot of uncertainty on the markets, but one thing’s for sure, and that’s as long as the economy continues to grow and consumers and businesses need money, banks will continue to thrive, making RBC a very attractive investment for the foreseeable future. And from the example above, the potential dividend income could be extremely valuable to retirees looking for some stability.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any of the stocks mentioned. 

More on Dividend Stocks

Man making notes on graphs and charts
Dividend Stocks

Put Your Cash to Work: 3 Cheap TSX Stocks (With Dividend Yields of +5%) to Buy Now

Make your money work for you. Earn over 5% dividend yields with these under-$20 stocks.

Read more »

edit Woman calculating figures next to a laptop
Dividend Stocks

2 Oversold TSX Stocks for TFSA and RRSP Investors to Buy Now

These top TSX dividend stocks look oversold.

Read more »

Pixelated acronym REIT made from cubes, mosaic pattern
Dividend Stocks

2 Top High-Yielding REITs to Beat Inflation

Real estate investors can beat the 7% inflation by investing in these two high-yielding REITs.

Read more »

Increasing yield
Dividend Stocks

Passive-Income Alert: 2 Top TSX Stocks to Buy Now for 6% Yields

Top TSX dividend stocks now trade at discounted prices.

Read more »

Tired or stressed businessman sitting on the walkway in panic digital stock market financial background
Dividend Stocks

Which Canadian Stocks to Buy Ahead of a 2023 Recession?

Fortis stock may not be cheap, but it looks like a far better bet than bonds or GICs as rates…

Read more »

grow money, wealth build
Dividend Stocks

1 Top Discounted Growth Stock to Buy in This Market Environment

Consider investing in this Canadian growth stock to invest in a tech company that has remained resilient, despite the challenging…

Read more »

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

TFSA Passive Income: 3 Incredible Stocks That Earn $365 Every Month

Are you looking to raise the passive income in your TFSA? Here are three oversold stocks that could easily earn…

Read more »

A worker uses a double monitor computer screen in an office.
Dividend Stocks

2 Top Commodity Stocks to Hedge Your Portfolio Against Inflation

Consider investing in these two commodity-backed stocks to hedge your portfolio against the inflationary environment.

Read more »