The Motley Fool

3 High-Dividend Canadian Stocks for Early Retirement

Early retirement handwritten in a note
Image source: Getty Images

Do you want to retire early? If so, you’ve got your work cut out for you. According to a poll of financial advisers, the average Canadian needs about $750,000 to retire. At a 3% yield, that gives you about $22,500 a year. Combined with CPP and OAS, that might be enough to live on. But if early retirement is your goal, you won’t have CPP and OAS to rely on. So, you’ll need either more money or a higher yield. In this article, I’ll explore three TSX stocks that may just throw off enough dividends to retire on $750,000.

Enbridge

Enbridge (TSX:ENB)(NYSE:ENB) is a TSX energy stock with a 6.84% yield. $750,000 invested in ENB stock pays $51,300 a year. That’s easily enough to live on if you’ve got your house paid off and you budget well — particularly if you tax shelter a portion of your portfolio. Not only that, but Enbridge’s dividend has been growing over time. Over the last five years, the compound annual growth rate in dividends has been 9%. If that trend continues, and you buy ENB stock today, your yield on cost will eventually go much higher than the current 6.84%. So, this is one retirement dividend stock with a lot of potential.

TransAlta Renewables

TransAlta Renewables (TSX:RNW) is a renewable energy utility that delivers hydro, solar, and wind power to customers across Canada, the U.S., and Australia. It pays out a $0.783 dividend every single month. On an annualized basis that gives us a 4.49% yield. If you invest $750,000 at a 4.59% yield, you get to $34,425 in annual income. That’s a pretty decent little income supplement right there. Maybe it’s not enough to live on on its own, but if you live in a low-cost-of-living area, it’s possible. On top of that, RNW’s dividend has the potential to grow. In the second quarter, RNW’s cash from operations grew by about 12%. If the company can keep modestly growing its cash flow, then it can modestly grow its dividend, too. That could result in a higher yield on cost in the future.

Canadian Imperial Bank of Commerce

Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) is a Canadian bank stock with a 3.95% yield at today’s prices. If you invest $750,000 at a 3.95% yield, you get to about $29,625 in annual income. Maybe that’s not enough to retire on, but CM has some serious dividend-growth potential. CM stock has grown its dividend by a respectable 6% annualized over the last five years. If it keeps up that growth, then a position bought today will have a higher yield on cost in the future.

Will it keep up that growth?

It’s hard to say, but here’s one thing: CM’s most recent quarter saw massive growth, with net income up 321%, EPS up 328%, and a large improvement in return on equity. A lot of that is because the bank was comparing itself to a prior year quarter with huge COVID-19 damage in the equation. However, there was modest sequential growth (about 2%) in the picture as well. So, CM’s second-quarter growth wasn’t just a matter of base effects. It’s a successful, growing bank.

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge.

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.