Canada’s average inflation is 2-3%. But the post-pandemic pent-up demand drove inflation up, even after the Justin Trudeau government ended the stimulus program. The central bank had to step in and accelerate interest rate hikes as Canada’s inflation peaked at 8.1% in June, before slowing to 6.9% in September. High inflation has hit retirees the hardest as it eats up a significant amount of their retirement savings. This whole episode has made young and old investors revisit their stock retirement portfolios.
The two inflation-adjusted stocks retirees need right now
The rising inflation is eating up your purchasing power. Therefore, you need growing dividend stocks that can help you beat inflation and increase your purchasing power. Whether you are retiring soon or after a decade, the bear markets have brought a treat for dividend seekers this Halloween.
BCE
The telecom giant BCE (TSX: BCE)(NYSE: BCE) is also a dividend aristocrat with a history of paying regular quarterly dividends since1983. It has been growing these dividends at a compounded annual growth rate (CAGR) of 4.3% since 2010. BCE’s dividends grew faster than average inflation, protecting the purchasing power of its investors. The company has embarked on a new growth chapter of 5G that will bring broadband-like speed to edge devices.
The 5G opportunity is several times bigger than the current 4G long-term evolution that facilitates live streaming and video calling. The 5G-powered devices will facilitate autonomous cars and robotics. BCE is leading the 5G momentum in Canada, with the major competitor struggling with network outages and a major merger. The growing cash flows from 5G subscriptions and increasing network outreach will keep incremental dividends coming.
BCE stock is trading 15% below its April high. You can buy the stock now and lock in a 5.95% dividend yield, while it recovers from its October low.
Algonquin
Algonquin Power & Utilities (TSX: AQN)(NYSE: AQN) is another high dividend stock that fell prey to the April bears. The clean energy company supplies electricity from its solar, wind, natural gas, and hydropower plants. It is a hidden gem in the dividend world. AQN stock is not a dividend aristocrat but the company has increased its dividend at a CAGR of 9.2% in 10 years, with 7% dividend growth in 2022. The ever-growing demand for electricity will keep cash flows coming.
Algonquin stock is trading at 25.5% below its April high, creating an opportunity to lock in a 6.59% dividend yield. The 7-9% dividend growth can take care of one-off instances like the 2022 post-pandemic fallout that pushed inflation to 8%.
How retirees can invest in the above two stocks
The above two stocks can earn you passive income that can fight inflation and protect your purchasing power.
If you are a retiree or retiring next year, you might have a significant amount in your retirement pool. You can allocate $35,000 each to the two stocks and lock in an annual dividend of $4,340. This amount could increase to $7,400 in 10 years, assuming a CAGR of 5% and 7%, respectively. As these stocks are trading near their 52-week low, and they can grow your $70,000 to $80,000 in two years as the economy recovers.
Make sure you diversify your retirement pool into bonds, ETFs, and fixed deposits, as they carry lower risk than individual stocks.
How to invest in dividend stocks if you are a decade away from retirement
If you are in your mid-30s, you can maximize the benefit of these growing dividend stocks by opting for a dividend reinvestment plan (DRIP). You need not invest $35,000 in one go.
A $500 monthly investment in each of the two stocks with a DRIP option will grow your number of shares. If the two companies maintain a 5% and 7% dividend CAGR for the next 15 years, your large share pool can give you an annual dividend of $28,100, or $2,343 a month, by 2037.
Starting early in the stock market has its benefits.
