Difficult times, like the pandemic, teach us many things. Many Canadians, especially those who lost their livelihoods or got their incomes slashed, learned the importance of nest eggs and rainy-day savings. Without any of the funds and savings to fall upon, people had to rely on government benefits like CERB, but what if programs like CERB didn’t exist?
And the situation looks even darker for retirees. These are the people who already have nest eggs, but if they tie their whole life’s earnings and savings to the wrong stock (or a wrong asset), they risk of losing it all or at least seeing it drastically diminish in size. Sometimes, the nest eggs become too small to sustain the retirees, who, unfortunately, can’t start earning a full-time income.
If you are a retiree and want to protect your wealth and make sure it’s available to you and working for you, one way is to invest it in a safe dividend stock. It should preferably be an aristocrat with a stellar dividend history and a track record of withstanding market crashes and recessions. One stock that fits the bill might be TC Energy (TSX:TRP)(NYSE:TRP).
Powerful dividend history
TC Energy has a history of growing its dividends for 19 consecutive years. It means that the company kept raising its dividends through the Great Recession, a significant slump in 2014-2015, another in 2018, and the recent crash. And the growth is more than just symbolic. Between 2016 and 2020, the company has grown its dividends by almost 44%. That’s a CAGR of about 7.66%.
The current dividend yield is a juicy 5.65%. So, $50,000 in the company can offer you about $2,825 a year. That’s enough for a retiree to survive for a month. Or you can divide the amount for 12 months to augment your CPP and OAS pension. The payout ratio of 68.4% is highly sustainable, especially if you consider the energy sector’s current condition.
TC Energy is primarily a natural gas company, with 93,300 kilometres of pipelines and various storage facilities. It also has a liquid and oil operation, but with just 4,900 kilometres of liquid pipelines, it only makes up a fraction of the company’s business. The company also produced about 6,000 MW of energy in 2019 alone.
The energy sector is in turmoil, and TC Energy is no exception, but the future of gas still seems more dependable than the future of oil. One fact that endorses this notion is that Buffett bought Dominion Energy. Even when governments and businesses are taking steps to reduce the carbon footprint, it will take years, perhaps decades, for natural gas to become completely irrelevant.
The chances of TC Energy slashing its dividends are relatively low. The company has a strong balance sheet, and revenue and gross profit seem steady. Even if it might not strengthen your portfolio from a capital-growth perspective, its yield, safety of dividends, and steadily increasing dividends (at a decent rate) are reasons enough for retirees to consider this aristocrat.
Speaking of nest eggs...
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Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Dominion Energy, Inc.