Canadians in retirement are facing a financial challenge. When you were young and working, you allocate a portion of your pay cheque for investments. The goal was to build a nest egg over time.
But given that your regular pay cheque is a thing of the past, you want something similar. The goal now is to find the best way to generate income from your investments in retirement. The most effective maneuver is to have both fixed-income investments and dividend stocks in your portfolio.
Cash wedge
When there’s a stock market downturn, panic or ill-timed selling occurs. You might even be selling at a loss, and therefore, you reduce your underlying investments. If you dispose of dividend stocks, you lose your passive income as well.
A retiree can manage the risks by withdrawing from the fixed-income when there’s a declining market. It would be good to have high interest-bearing savings account as a fixed-income investment.
Regular source of cash
Dividend stocks are assets that produce consistent cash flows. Among them are well-established names in the banking and energy sectors.
Lately, however, many retirees are investing in the safer utility sector, particularly Fortis (TSX:FTS)(NYSE:FTS).
Fortis is an excellent core holding in an investment account like the TFSA. You can draw the dividends from this super-stock for your cash flow needs.
Also, this $25 billion regulated electric company intends to raise dividends by at least 6% through 2023. Thus, you can cope with inflation too.
Over the last five years, the dividend growth rate (DGR) is 6.83%. The current yield is 3.51%.
A $300,000 investment can produce $10,530 in annual passive income. It can supplement your pension plan or OAS to live comfortably in retirement.
Protection against an unpredictable market
It’s a good thing that the U.S. and China were able to reach a trade deal recently. If not, the threat of recession will persist. Still, the market is unpredictable, if not dangerous.
Your stock investment in retirement should be able to keep your capital intact while providing uninterrupted dividend payments.
As the utility asset base of Fortis is diversified and regulated, the company delivers consistent earnings growth. Long-term investors are looking for this feature in a dividend stock.
The 45-year track record of paying dividends is a sign of a healthy balance sheet, business growth, and safety of dividends. Furthermore, an established utility company like Fortis can shield your capital from market volatility.
Smart strategy
Retirees can draw from fixed-income or stock portfolios depending on the market environment. Either way, you have a source of steady income stream during retirement.
Also bear in mind too that your retirement fund can remain intact if your portfolio grows at the same rate you’re withdrawing amount.
Fortis is a top draw among retirees because of its business model. With nearly 100% of earnings coming from regulated and long-term contracted operations, the company’s stability is never in question.
Finally, Fortis is in a position to maintain the dividend growth rate in the next few years. It has an $18.3 billion budget for capital projects that will run through 2024.
