Investors planning to supplement their income during retirement should consider buying a few high-quality dividend-paying stocks. Besides providing regular income, dividend-paying stocks are relatively less volatile given their ability to consistently grow earnings irrespective of the economic cycles.
Further, I recommend you invest in dividend stocks through your TFSA (Tax-Free Savings Account), as your dividends are not taxed.
Let’s dive deeper into three stocks that are reliable bets to generate worry-free income during your retirement. Further, these stocks are trading cheap (under $50), have sustainable payouts, and are yielding over 3.5%.
Despite being a part of the energy sector (the performance of which is closely tied to economic cycles), Pembina Pipeline (TSX:PPL)(NYSE:PBA) is a reliable bet for retirees. This is due to its highly contracted business, ability to generate strong fee-based cash flows, and sustainable payouts.
To give a little background, this energy infrastructure company has consistently rewarded its shareholders with a monthly dividend and has distributed more than $10 billion in dividends since its inception. In the last decade, it has increased the dividend at a CAGR of about 5%. Further, Pembina paid dividends even at the peak of the pandemic, which is incredible and reflects the strength of its cash flows.
Pembina pays a monthly dividend of $0.21 a share and offers a stellar yield of over 6.0%. I believe the company could continue to generate stable dividend income for its investors, as its payouts are covered through the resilient and growing fee-based cash flows. Its diversified assets and contractual framework will likely drive its fee-based cash flows. Further, solid backlogs, growth projects, higher realized prices, and increased volumes augur well for growth.
AltaGas (TSX:ALA) has evolved as a reliable income stock that is currently trading cheap. Thanks to its balanced portfolio of low-risk utility assets and high-growth midstream business, it has enhanced its shareholders’ returns through consistent dividend payments. AltaGas pays a monthly dividend of $0.083 a share and yields 3.7% at current price levels.
I believe its regulated utility assets and rate base growth will continue to generate predictable cash flows that could easily cover its payouts. Further, its high-growth midstream operations will likely accelerate its growth and drive higher dividend payments.
I expect rate base growth, integration of Petrogas, customer acquisitions, higher export volumes, and an increased asset utilization rate to drive its profitability at a healthy pace over the next several years and, in turn, support its payouts.
Algonquin Power & Utilities
Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN) stock is another solid investment to generate steady passive income. It operates a low-risk utility business and owns high-quality assets that generate predictable cash flows supporting higher dividend payments.
Algonquin Power & Utilities has grown its dividends at a CAGR of 10% in the last 11 years, thanks to its power-purchase agreements and rate base growth. It offers quarterly payouts and is yielding 4.6% at current price levels.
Looking ahead, I believe the company will continue to reward its shareholders with higher dividends, owing to its regulated assets and contractual agreements. Its long-term power-purchase agreements, double-digit rate base growth rate, and capacity expansion in the renewable power segment position it well to deliver solid cash flows. Further, strategic acquisitions will likely accelerate its growth.