If you’re already aware of Old Age Security (OAS) and the Canada Pension Plan (CPP), you might be asking yourself the question whether you need any savings at all!
Starting at age 60, Canadians are eligible to start taking out both OAS and CPP. For OAS, you can receive $614.14 per month, or $7369.68 per year. For CPP, the average for this came in at $710.41 per month, or $8524.92 per year. That’s a combined total of $15,894.60. Clearly, as that is almost halfway below the poverty line, that is not enough to live on.
There are a lot of other things to consider as well. How long will you live for? How much will healthcare cost? Do you want to travel in retirement? Downsize? Upsize? What it comes down to, is $15,000 is not enough for you to have the retirement you deserve. But does that still mean you need savings?
It’s not too late
What you need is another passive income stream. If you’re about to retire and have practically or nothing in savings, you need to take what money you can afford to put aside for investment and start creating passive income. That comes from solid dividend stocks. When I say solid, I mean companies that are set up to be around for decades, and have a long history of dividend payouts.
In that case, I would highly recommend a company like Suncor Energy Inc. (TSX:SU)(NYSE:SU) at this point in time. You might be asking yourself why you would want to invest in a stock that has fallen so low. That’s precisely the point. It’s a steal right now, and here’s why.
The company is Canada’s largest fully integrated oil and gas company. It is still bringing in solid revenue even with production at such lows. That comes from its downstream assets, and from its marketing. But it’s the future that looks bright for the stock. That comes from two scenarios.
Scenario one: Suncor rebounds as oil and gas rebounds, which it will. When this happens, oil and gas companies will start soaring as the economy does well again and production ramps up with the increase in pipelines. Suncor will then be able to use its assets that have been lying in wait for this moment.
Scenario two: renewable energy. Suncor is an oil and gas producer, but even it is starting to see the winds changing. Literally. The company invested in two wind farms, but this may only be the beginning. As governments start investing in renewable projects, Suncor could be right there ready to pick up the baton. A full change is likely decades away, leave ing Suncor in a strong position to take advantage of energy prices both now and in the future.
All this is to say even though it’s cut its dividend, that dividend is safe. It’s also likely to soar back to pre-crash heights when the economy rebounds — and likely faster than most other companies thanks to its revenue stream.
Bottom line
Right now, Suncor is a steal with a 12.1x price-to-earnings ratio (P/E). It has a dividend yield of 5.59%, and the potential to soar in returns over the next year or more, never mind the next few decades. If you started now and invested $60,000 from your TFSA contribution room, you could begin bringing in $3,360 in dividends each year. If you reinvested that income, you could have $2.6 million in the next 20 years!
