Canada has the Old Age Security (OAS) and the Canadian Pension Plan (CPP) as two income-generating streams for retirees. In order to avail of the CPP benefits, an individual needs to be over the age of 60 with at least a single valid contribution to the plan.
The OAS is available to Canadians who have stayed in the country for at least 10 years and can be availed over the age of 65. The maximum payout amount when you combine the CPP and OAS is $1,789.36 and the average monthly payment is $979.63.
This is hardly enough, especially for someone who plans to enjoy their retirement in large Canadian cities such as Toronto and Vancouver. As retirement nears, one would ideally want your income to work for you.
In order to supplement the OAS and CPP payouts, retirees also need to focus on creating a solid portfolio of income-generating investments. Here is where the Tax-Free Savings Account (TFSA) comes into the picture.
We know that the TFSA contribution limit for 2020 is $6,000, while the total contribution limit for individuals who have never invested in this account since its inception in 2009 is $69,500.
As the name suggests, withdrawals from the TFSA are not taxed, and investing here can create substantial long-term wealth.
Retirees or people close to the retirement age can’t afford to have high-risk investments such as cannabis or even high growth tech stocks. These investments are volatile, and a broader market sell-off can easily wipe out a considerable chunk of their portfolio.
The ideal investment will a blue-chip Canadian stock with high dividend yield, strong fundamentals, and robust cash flows.
Telus has a forward dividend yield of 4.4%
Telus (TSX:T)(NYSE:TU) is a Canadian heavyweight and one of the top players in the telecom space. It provides a range of telecom services including wireless and wireline voice and data.
Telus has a market cap of $32.3 billion and an enterprise value of $49.3 billion. It has a five-year beta of 0.61, which makes it a solid buy for low risk investors. In the first three quarters of 2019, Telus experienced subscriber growth across business segments, resulting in revenue and earnings growth.
In 2019, analysts expect company earnings to grow by 2.2% to $14.69 billion and by 5.2% to $15.46 billion in 2020. Comparatively, earnings are expected to grow by 2.1% in 2019, 8.2% in 2020 and at an annual rate of 6.2% in the next five years.
The stock has a forward price to earnings multiple of 17 and a dividend yield of 4.4%. Telus ended Q3 with a debt balance of $17.3 billion. Its operating cash flow was $4.05 billion providing it enough liquidity to service debt and interest payments.
In the last year alone, Telus stock has returned 13.4% compared to the S&P 500 gains of 18.7%. However, after we account for the dividend yield, Telus has performed in line with the broader market.
The upcoming transition to 5G will be a key driver of top-line growth. The growth in sales will also help expand profit margins. In the last decade, Telus has improved EBITDA by 50%, a growth of 4.5% year over year, which is mighty impressive for a large-cap company.
