A few decades ago, it seemed like every middle-class Canadian worker could count on a pension — even the folks working in blue-collar jobs.
Things are much different in 2019. Government employees can still rely on their employer to cover their golden years, but pensions offered by private employers are few and far between. In an attempt to save money and decrease uncertainty, many companies choose to offer RRSP matches rather than contributing to a pension on behalf of their employees.
The bad news is, employees are now in charge of their own retirement. But this doesn’t have to be as bad as assumed. It’s not that hard to turn your RRSP or TFSA into something that generates gobs of passive income. In fact, you can easily invest in the same kinds of companies that are owned by top pensions.
I’d recommend using your TFSA first to build your own pension, since you don’t have to worry about taxes on withdrawals. Let’s take a closer look at how you can do just that, including a couple of companies that would look great in such a portfolio.
Focus on sustainable dividends
Many investors are enticed by monster yields, as they follow the simple logic of large dividends being better than smaller ones.
But we must also remember that a dividend cut is especially painful when you’re investing for income. It will not only decrease your monthly cash flow; it’ll decimate your savings as well.
Rather than focusing on bigger dividends, investors should place a premium on stocks that pay sustainable dividends, preferably ones with a history of dividend growth behind them. These are the kinds of companies that will be able to provide long-term income, and many should deliver capital gains as well.
RioCan REIT (TSX: REI.UN) continues to be one of my favourite dividend stocks to own over the long term. The company is Canada’s largest publicly traded owner of retail real estate with a portfolio of more than 39 million square feet of space spread out over more than 200 different locations. These assets deliver a lot of consistent cash flow, capital that is reinvested back into the business and, most importantly, paid to shareholders in the form of a generous monthly dividend. The current yield is 5.5%.
I’m also excited about RioCan’s development portfolio, which allows it to build new assets for cheaper than comparable builders because the company has owned the property for years. It has more than a dozen urban mixed-use projects in various stages of development, encompassing a combination of retail space, offices, and apartments.
Investors should also note RioCan has been an excellent investment since its 1994 IPO, returning nearly 16% per year.
Another great choice
Laurentian Bank of Canada (TSX: LB) is quietly offering a very compelling investment opportunity today.
The company operates primarily in Quebec but is slowly expanding outside the province with a series of acquisitions. It is also diversifying mortgage lending outside the province by working with mortgage brokers through its B2B subsidiary. All this translates into better growth potential than its larger rivals.
Laurentian Bank shares are also cheap compared to its competition. Shares trade comfortably under book value — compared to a hefty premium to book value for Canada’s other large banks — and at less than 10 times forward earnings expectations.
Management is currently focused on making the bank more efficient to increase profitability to something more comparable to the competition. If successful, this could have a big impact on the stock price.
Meanwhile, investors can sit back, relax, and collect Laurentian’s succulent 5.7% dividend — a payout that has been increased each and every year since 2009.
