Relatively high inflation recently has made a lot of Canadians strapped for cash, particularly retirees who don’t work anymore. Retirees, you can boost your pension by investing in dividend stocks. Make sure to select ones that tend to increase their dividends over time instead of focusing on high yields. You’d want quality stocks and watch out for the valuation you pay, because capital preservation is critical.
A well-built dividend stock portfolio can grow your income at a faster pace than long-term inflation and therefore help you more than maintain your purchasing power. It should also allow you to sleep well at night.
Here are some wise stock picks to boost your pension income.
TD Bank
Because of the banking shake-up in the United States, in which Toronto-Dominion Bank (TSX:TD) owns an approximate stake of 12% in Charles Schwab, the TD stock price also took a dive. This provides a fabulous opportunity for retirees with long-term capital to accumulate quality TD shares on the cheap!
At $82.70 per share at writing, the undervalued stock offers a decent dividend yield of 4.6%. Across 15 analysts, the 12-month consensus price target suggests a discount of roughly 14% and near-term upside potential of about 16%.
As the banking shake-up in the U.S. is still playing out and a recession is expected in Canada as well as in the U.S., the stock could continue to be depressed in the near to medium term.
Notably, the Canadian bank stock had above-average total returns and dividend growth in the past decade with a 10-year dividend-growth rate of 9.4%.
Brookfield Infrastructure
If you like quality businesses and dividends (who doesn’t?), you should also take a closer look at Brookfield Infrastructure Partners (TSX:BIP.UN), especially if you have room in registered accounts like Registered Retirement Savings Plan/Registered Retirement Income Fund or Tax-Free Savings Account.
BIP has been an outperforming utility stock in terms of dividend growth and total returns in the last decade, and it’s set to continue taking the lead. For reference, it has increased its cash distribution per unit for 15 consecutive years. Its 10-year dividend-growth rate was 9.1%, and management aims to continue increasing its cash distribution by 5-9% per year.
Without disappointment, BIP reported excellent first-quarter results. For the quarter, its funds from operations per unit rose about 12.5% year over year. Its cash-distribution yield of 4.2% remains solid.
Management has a track record of execution. It has the ability to make fitting, quality assets at the right price. These assets, by nature, generate substantial cash flow through economic cycles. Furthermore, Brookfield Infrastructure has the operation expertise to improve its assets and sell mature assets to redeploy capital for better risk-adjusted returns.
At $49.54 per unit at writing, analysts believe the dividend stock trades at a discount of about 20% on the TSX with the potential to appreciate about 25% over the next 12 months.
Investor takeaway
Because many retirees don’t work anymore, they have to be extra careful with their portfolio composition to ensure their portfolios are well diversified with solid investments. Dividend stocks can be a core part of that in boosting their pensions. Here’s how to start investing.
