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Retirees: How to Generate More Income Now and for the Future

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Are you retired or retiring soon? Interest rates are at historical lows, making it impossible for many retirees to generate the income they need to live their ideal retirement lifestyles.

Shifting more retirement funds into stocks from fixed-income investments could help. It would be better to make the transition at least several years before retirement to take advantage of buying opportunities that are provided by the stock market along the way.

How to make more income now

Many safe dividend stocks generate more income than interest-bearing investments. Canadian Dividend Aristocrats like Fortis (TSX:FTS)(NYSE:FTS) stock tend to increase their dividends year after year. Their recent yield histories give a hint on good times to buy.

The chart below displays Fortis stock’s yield over the last five years. There were multiple opportunities to buy the quality dividend stock for an attractive yield of 4% or higher.

FTS Dividend Yield Chart

FTS dividend yield data by YCharts.

Fortis stock is perfect for retirement income portfolios because of its defensiveness, predictability, and low beta. It has increased dividends for 47 consecutive years. Its one-, three, five-, and 10-year dividend-growth rates are about 6%.

Through 2025, management aims to continue to increase the dividend by about 6% per year on average. Consequently, if you buy the stock for an initial yield of 4% and the business consistently grows by about 6% to support dividend growth at that rate, you’ll end up with long-term annualized returns of about 10% on your investment.

Retirees or soon-to-be retirees can use this strategy to build a portfolio of safe dividend stocks that tend to grow their dividends. Consider dividend stocks like Royal Bank of Canada, TELUS, TC Energy, and Granite REIT opportunistically to help boost your income immediately.

How to make more income in the future

While the previously discussed, relatively high-yield dividend growers are excellent for increasing your income today and are expected to keep growing their dividends in the long run at rates faster than inflation, you can focus a portion of your stock portfolio on higher growth.

Canadian Tire (TSX:CTC.A) has a long history of operation and is an iconic brand in the hearts of many Canadians. Its e-commerce sales contributed to close to 14% of its total sales in the last 12 months.

The dividend stock provides a decent yield of 2.3% for starters. Additionally, it has historically delivered greater dividend growth. Its five-year dividend-growth rate is 16.7%. This means it could potentially grow its dividend faster and generate more income for retirees down the road.

Last year, the pandemic provided a super sale to buy the stock. Pundits thought economic lockdowns would cause Canadian Tire’s earnings to fall drastically.

Miraculously, the company’s adjusted earnings per share in 2020 were essentially flat versus 2019, while the stock fell more than 40% and traded at a low price-to-earnings ratio of about 6.2 based on normalized earnings. This is a prime example that the market can overshoot by fear. And investors should seize these kinds of buying opportunities.

The stock has more than recovered and recently made an all-time high. It has appreciated about 150% from last year’s $80-per-share low! It’s certainly a good name to keep watch for buying when it goes on sale again.

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.

The Motley Fool recommends FORTIS INC, GRANITE REAL ESTATE INVESTMENT TRUST, and TELUS CORPORATION. Fool contributor Kay Ng owns shares of Fortis and Royal Bank of Canada.

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