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CPP and OAS Not Enough? Boost Your Income by $200/Month and Avoid Clawbacks by Investing in This 1 Stock

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The Canada Pension Plan (CPP) and Old Age Security (OAS) don’t provide enough money for many Canadians during their retirement years. And as a result, many seniors have to adjust their style of living in order to make ends meet.

But it doesn’t have to be that way. Through their savings, investors can take advantage of their Tax-Free Savings Account (TFSA) and invest in high-yielding dividend stocks to supplement their income. And the best part of a TFSA is that any income earned on eligible investments within the account are tax-free. For seniors, there’s no risk of a clawback and the government asking for its money back.

The TFSA is a great tool for people to save and put aside money that can pay off later on. For instance, if you were able to save a little more than $200 a month for 10 years, that would give you $25,000 in savings. It’s not a huge amount, but if you had room in your TFSA and invested that in a dividend stock that pays 5% per year, that would be an extra $1,250 a year in tax-free dividend income.

Here’s how much you can earn with a $25,000 investment today

If you’ve got $25,000 saved up and available to invest today, you can make an even better return than just 5%. The COVID-19 pandemic’s sent many stocks crashing down, and investors have a great opportunity right now to lock-in some dividend stocks that are offering much higher yields than normal as a result of their lower stock prices.

A good example is Riocan Real Estate Investment Trust (TSX:REI.UN). It’s among the top real estate investment trusts (REITs) in the country and it pays a monthly dividend of $0.12. On an annual basis, that’s a yield of roughly around 9.5%. If you’re able to get the stock at $14 or lower, then your yield would be more than 10% per year. A $25,000 investment on a stock yielding 10% would earn you $2,500 a year. But with payments made every month, that would be more than $200 a month in income. And inside of a TFSA, that money would not be taxable nor would it impact any OAS clawback.

Another benefit of buying Riocan today is that the stock is trading at around seven times its earnings and well below its book value. It was only a few months ago that shares of Riocan were trading at over $27. If the stock could get back to where it was before the pandemic, investors could see their investments double in value.

Investing in high-yielding stocks usually involves taking on some risk

Prior to COVID-19, I would’ve said that Riocan’s a safe dividend stock that you can hang onto for years. But today, the reality is that many dividend stocks are at risk. The longer the pandemic goes on, the more of an unknown there’ll be in the economy, and many stocks will feel some sort of impact along the way.

The risk that Riocan faces is that tenants won’t be able to pay rent. However, the company’s well-diversified and that should play to its advantage. In April, the company provided investors with an update related to COVID-19 and it stated that “no single tenant accounts for more than 5% of the trust’s annualized rental revenue.” That’s important from a risk standpoint as it ensures that Riocan isn’t overly exposed to one tenant and that can go a long way in helping the company weather the storm ahead.

For investors who are too risk-averse to take on Riocan, there are safer dividend stocks out there to invest in.

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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.

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