The Motley Fool

3 High-Yield Dividend Stocks to Build a 2nd Pension With

Where to Invest?
Image source: Getty Images

Every Canadian envisions a stress-free retirement. However, the sunset years won’t be enjoyable if you don’t cover the blind spots. The primary lookout is cash flow. Pensions like the Canada Pension Plan (CPP) and Old Age Security (OAS) will be there when you retire, although they aren’t the total package.

Building a second pension will help you conquer the financial hurdles in retirement. Start today and do it yourself. If you have seed capital, consider dividend investing. Choose from among high-yield dividend stocks like Keyera (TSX:KEY), Alaris Equity Partners (TSX:AD), and True North Commercial (TSX:TNT.UN).

Rock-solid dividends

Keyera is a solid choice because the energy stock is a dividend aristocrat. Besides the lucrative 5.94% dividend, the payout of this $7.39 billion energy infrastructure company is monthly, not regular quarterly. You can incorporate the investment income into your monthly budget.

Dividend growth has been steady since Keyera went public in 2003. Because 70% of its cash flows come from fee-for-service contracts with investment-grade customers, commodity price fluctuations won’t interrupt dividend payments. The total return in the last 18 years is 967.77% (13.92% CAGR).

Keyera’s year-to-date gain of 53.82% makes it one of TSX’s top performers. Management has allocated up to $450 million in growth capital for the full year of 2021. It also hopes to realize between $45 million and $65 million in cost savings this year.

Unique funding structure

Alaris Equity Partners is ideal if your preference is the private capital market. The $758.51 million income trust specializes in helping private businesses (no startups) achieve their full potentials.

The stock isn’t doing bad either, as evidenced by the 15.95% year-to-date gain. At $16.87 per share, you can partake of Alaris’ generous 7.32% dividend. Given the high yield, any investment amount will double in less than ten years (9.83 years).

Alaris’ investment or structure is unique. The company provides equity or growth capital to lower middle-market companies in North America. Apart from a proven management team, a funding candidate must be generating an annual free cash flow of $3 million or more. More importantly, the company has a low risk of obsolescence.

Stability in the pandemic

True North Commercial isn’t the largest real estate investment trust (REIT) in Canada, but it possesses the best tenant profile among all REITs. Also, at only $7.62 per share, this $665.22 million REIT pays an attractive 7.92% dividend. Like Keyera and Alaris, True North outperforms in 2021 (+26%).

How can you go wrong when the federal government of Canada is the lead lessee in 12 of the 47 income-producing properties? Government tenants compose35% of the high-quality renters, while 40% are credit-rated companies. The top three contributors to gross revenue are the federal government of Canada (14.4%), the province of Alberta (9.8%), and the province of Ontario (60%).

True North’s weighted average term on lease renewals and replacements is 7.4 years. For new lease deals, it’s 4.3 years. The occupancy rate is a high 97%. Because of the fully occupied portfolio of predominantly government and credit-rated tenants, expect the REIT to maintain stability in the pandemic environment.

Prepare for the unemployment years

A second pension will help future retirees prepare for and get through the unemployment years. Retirement life should be a ball with recurring income streams from high yield dividend stocks.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Alaris Equity Partners Income Trust and KEYERA CORP.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.