The best way to lead a comfortable life in retirement is by creating multiple streams of passive income. You need to put your savings to work, which, in turn, will generate predictable cash flows enabling retirees to meet their required expenses. One low-cost way to generate passive income is by investing in blue-chip dividend stocks, which will help you earn regular payouts as well as derive long-term capital gains.
Here’s how you can create a dividend income stream for retirement with these quality stocks.
Pembina Pipeline stock
An energy infrastructure company, Pembina Pipeline (TSX: PPL), currently offers you a dividend yield of 6.1%. The Canadian energy giant operates pipelines, export facilities, storage terminals, and processing plants. Similar to other energy infra peers, Pembina leases the capacity of its assets under fixed-rate contracts that are indexed to inflation, allowing it to earn cash flows across market cycles.
In the last 20 years, Pembina Pipeline stock has returned over 1,000% to shareholders after adjusting for dividends, easily outpacing the broader TSX index comfortably. It currently trades at a discount of 20% to consensus price target estimates.
With an extensive backlog of secured growth projects, Pembina is well poised to increase cash flows and dividend payouts in the future.
Pembina has a low-risk business model and generated 82% of its profits from fee-based contracts providing investors with earnings visibility. In the last 12 months, the company increased operating profits by 12% year over year.
TransAlta Renewables
A company operating in the clean energy space, TransAlta Renewables (TSX: RNW) offers shareholders a tasty dividend yield of 7.7%. The renewable energy giant aims to provide consistent returns to shareholders by investing in contracted renewable and natural gas power-generation facilities and other cash-generating infrastructure assets. These investments should result in stable cash flows through long-term contracts with investment-grade counterparties.
The company operates in three countries that include Canada, the U.S., and Australia, where it owns 2,993 megawatts of gross installed capacity. Its renewable energy production fell by 91 gigawatt hours in the first quarter (Q1) compared to the year-ago period. The decline was attributed to lower wind and water resources as well as higher unplanned outages south of the border.
Despite the fall in production, the company ended Q1 with a payout ratio of less than 90%.
Broadcom stock
The final dividend stock on my list is Broadcom (NASDAQ: AVGO), which is a tech giant valued at a market cap of US$260 billion. Among the most popular dividend-growth stocks globally, Broadcom pays investors a yield of 3%.
Broadcom operates in the semiconductor space and manufactures chips for verticals such as data centres, storage, wireless, broadband, and networking. Its major customer is Apple, which accounted for 20% of total sales in the last four quarters.
To gain traction in markets such as software infrastructure, Broadcom has invested billions of dollars in acquiring companies such as CA Technologies and Symantec in recent years.
Broadcom stock has returned a staggering 2,270% to investors in the last 10 years. It has increased dividends by an astonishing 37.5% annually. Priced at 15 times forward earnings, AVGO stock is trading at a discount of 11% to consensus price target estimates.
