If you are starting to think about retirement, dividend income is likely on your mind. Certainly, high-yielding dividend stocks can be very tempting. It’s an elevated tangible cash return that you can collect on a regular basis!
However, whenever you are looking at stocks with dividend yields over 7%, you need to be cautious. The stock market is factoring higher business, financial, or economic risks facing the stock. There is nothing worse than buying a high-yielding stock that crashes because the dividend got cut or dissolved.
Look for sustainable and growing dividend stocks
As a future retiree, not only do you need to earn passive income, but you also need to preserve and hopefully grow your capital over time. In fact, the combination of steady dividend growth and modest capital appreciation can create a serious nest egg for retirement. That is especially true if you choose to re-invest your dividends for a period before you actually start to draw your income.
If you are looking for some quality dividend stocks for retirement, here are three that could do well over the long term.
An infrastructure play for dividends
Brookfield Infrastructure Partners (TSX:BIP.UN) is a retiree’s best friend. It has great long-life essential assets, it pays an attractive 4.4% dividend, it has over a decade of high-single-digit annual dividend growth, and it trades at a fair value today. What more can you ask for?
Brookfield is both diversified by asset and geography. It operates everything from export terminals to natural gas processing plants to data centres. All of these are crucial to the global economy, so it tends to earn a stable, growing stream of cash flows.
This company has a smart management team that is very good at turning good assets into great cash-yielding businesses. This all means there is likely to be plenty of dividend growth for many years ahead.
An energy stock with BIG dividends
Tourmaline Oil (TSX:TOU) stock does not pay a big base dividend. However, its stock has been paying out generously to shareholders. Today, it only yields 1.7%. Yet over the past year, it has paid $8.70 per share in special dividends. That is equivalent to 14% trailing yield. In fact, it just announced a $1.50 per share special dividend.
Despite its name, Tourmaline is Canada’s largest natural gas producer. It announced record production in the first quarter of 2023. Tourmaline is a very efficient producer. While natural gas is volatile, Tourmaline has access to some of the highest-paying markets.
As a result, it continues to generate a tonne of cash ($2 billion in its recent quarter) even though natural gas prices have declined. Tourmaline has very little debt and it has committed to return most of its excess cash to shareholders.
An energy infrastructure stock with an attractive dividend yield
If you just have to have a larger dividend, Pembina Pipeline (TSX:PPL) stock is one of your better bets. It yields close to 6.1% today. The company is one of the largest providers of energy infrastructure and egress pipelines in Western Canada.
It does have some commodity price exposure, but most of its cash flows come from its contracted assets. This helps safely cover its dividend. Prior to COVID-19, Pembina grew its dividend by an average of 6% per annum.
Last year, it resumed growing its dividend. I suspect this will continue, especially as its balance sheet continues to improve and it completes some potentially transformational projects (like Cedar LNG).
