Planning for retirement is a two-step process. The first step is to build a million-dollar portfolio in your registered savings accounts. The next step is to convert your portfolio into a retirement income stream and an emergency pool. Here we will talk about the second step, in which you want a passive source of income.
Why invest in stocks for a retirement income stream?
If you withdraw regularly from your fixed-income funds, your retirement pool will gradually reduce. It could be problematic if your retirement fund exhausts while you have a long life ahead. Instead of putting your entire fund in fixed income, invest some portion in stocks.
Some stable dividend stocks can give you a worry-free retirement income without depleting your retirement pool. Instead, these stocks would grow your portfolio gradually. Remember, not all dividend stocks give monthly payouts, some give quarterly payouts.
Enbridge’s pipeline of passive income
As North America’s largest pipeline operator, Enbridge (TSX: ENB) has created an economic moat for itself. As it started building pipelines early, it connected a large portion of America and Canada. Today, it is becoming difficult to build new pipelines due to environmental concerns.
Even if Enbridge’s pipeline construction slows, it can continue paying its existing dividend from the toll money it collects for transmitting oil and gas. It can also grow dividends as it increases the toll rate if it undertakes work for expansion and improvements in pipeline flow.
Enbridge has slowed its dividend growth rate to 3% from its 28-year compounded annual growth rate (CAGR) of 10% to preserve cash. The company is channeling its cash to build infrastructure to tap North American liquefied natural gas (LNG) exports to Europe and Asian countries. This export opportunity could help Enbridge accelerate growth in the future as more pipelines come online. This could also reduce Enbridge’s significant dependence on exports to America.
The company has been paying regular dividends for 68 years and can continue paying dividends over the next few decades. A $10,000 investment in Enbridge in June 2003 would have paid $2,950 in annual dividends in 2023. The stock paid regular quarterly dividends and even increased them faster than inflation. As for your $10,000, they are now $41,733 because Enbridge’s stock price grew as the company added new pipelines.
While past returns don’t guarantee a future payout, it shows the dividend stability of Enbridge even in a global crisis.
BCE’s 5G income stream
BCE (TSX: BCE), Canada’s largest telecom operator, earns money from wireless, wireline, and media subscriptions. The telecom infrastructure has become the new oil of the digital world. You need internet access to do more and more activities, and BCE subscriptions give you that access. With artificial intelligence (AI) gaining momentum, there will be a proliferation of internet-connected edge devices. This could create more opportunities to generate income from 5G.
Unlike Enbridge, whose toll rate is regulated, BCE’s subscription amount is unregulated. But BCE faces competition from the other two players, keeping the subscriptions affordable.
The 4G resolution that began in 2011 drove BCE stock up 70% and its dividend at a CAGR of 6.2%. A $10,000 investment in June 2011 would now be $16,183, and your annual dividend income would be $1,021. This dividend income will grow with inflation and even in an economic crisis.
Final thoughts
BCE and Enbridge are contrarian stocks. While Enbridge is affected by geopolitical tensions and carries risk of America reducing its oil and gas imports from Canada, BCE is free from geopolitical risks. The risk of competition and technology upgrade that surrounds BCE doesn’t affect Enbridge.
A combination of the two stocks can balance market risk and bring you worry-free retirement income.
