During retirement, it makes sense to take a conservative approach and lower your risk profile considerably. But you still need to generate inflation-beating returns over time to avoid wealth erosion.
Hence, Canadian retirees should identify quality blue-chip stocks across sectors and hold them in a TFSA (Tax-Free Savings Account). One of the most popular registered accounts in Canada, the TFSA is tax sheltered, allowing you to grow dividends and capital gains over time without having to worry about taxes.
Here are three such dividend-paying blue-chip TSX stocks retirees should hold in a TFSA.
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Great-West Lifeco stock
A well-diversified financial services company, Great-West Lifeco (TSX: GWO) is valued at a market cap of $35.7 billion. It pays shareholders an annual dividend of $2.08, indicating a forward yield of 5.5%.
Great-West reported adjusted earnings of $3.22 billion in 2022, or $3.46 per share. In the last five years, it has increased earnings at an annual rate of 9.7%. Analysts expect earnings per share to rise by 6.5% this year to $3.67 per share. So, the TSX stock is priced at just 10 times forward earnings, which is quite cheap.
GWO stock has trailed the broader markets in the last 10 years and has gained 120% after adjusting for dividends. In this period, the TSX index increased by 131%.
But its compelling valuation and tasty dividend yield make the stock attractive to income and value investors.
Brookfield Asset Management stock
Last year, Brookfield Asset Management (TSX: BAM) announced a partial spin-off from Brookfield Corp. It recently raised US$19 billion from investors, increasing its total capital raise to almost US$100 billion in the last year. With US$79 billion in available investments, Brookfield Asset Management is identifying avenues to deploy capital, allowing it to benefit from higher fees and earnings in the future.
The asset management giant pays shareholders an annual dividend of $1.74 per share, translating to a yield of over 4%. Despite its massive size, Brookfield Asset Management expects to grow its dividend payout between 15% and 20% annually over the long term.
Analysts remain bullish on BAM stock and expect it to surge over 12% in the next 12 months. Priced at 23 times forward earnings, the company is forecast to increase earnings by 20% in the next year.
Emera stock
The final TSX stock retirees should own is Emera (TSX: EMA), a utility company with a dividend yield of 5%. Emera has grown into an energy leader with an asset base of $40 billion and serves 2.5 million customers in North America.
It owns and operates rate-regulated electric and gas utilities, resulting in stable cash flows across market cycles.
It’s now investing in renewable sources of energy and modernizing its base of cash-generating assets. Emera’s high-quality utilities have allowed Emera to increase earnings by more than 6% annually in the last 20 years.
With an average rate base of $25 billion, Emera will deploy another $9 billion in capital expenditures in the next three years. This will result in rate base growth of around 8% through 2025.
Priced at 18 times forward earnings, Emera stock is trading at a discount of 10% to consensus price target estimates.
