Rising inflation and interest rate weigh down on everyone preparing for retirement. According to the Healthcare of Ontario Pension Plan survey results, Canadians aged 55 to 64 intend to delay their exit from full-time employment or work if the trend continues.
Also, the poll results suggest that many are unprepared for retirement due to a lack of savings. Retirement planners say you won’t have financial peace of mind if you don’t have enough in your nest egg.
The best strategy to achieve long-term financial goals like retirement is still to save early, save often, and put your money to work by investing. If retirement is on your mind, two quality dividends stocks can help boost retirement funds and serve as hedges against inflation.
Bedrock of stability
High interest rates will persist until the Bank of Canada can tame inflation (2% is the target), and loan risks threaten the banking sector in 2023. However, from an investment standpoint, Bank of Montreal (TSX:BMO) remains a bedrock of stability, even if it sacrifices income and bolsters loan-loss provisions.
BMO, TSX’s dividend pioneer, saw its net income in the second quarter (Q2) of fiscal 2023 drop 77.7% to $1.06 billion versus Q3 fiscal 2022. The significant decline was due to higher provision for credit losses (PCL) and the integration of the newly acquired Bank of the West.
Its chief executive officer (CEO) Darryl White said the successful acquisition further enhanced the strength, size, and stability of BMO’s balance sheet. He added the quarterly results reflected the highly diversified business mix and were underpinned by strong asset quality and capital.
BMO is now Canada’s third-largest bank and North America’s eighth-largest bank by market capitalization. The conversion of the banks’ systems should be complete by September 2023.
Going back to its viability as a retirement wealth builder, the $83.76 billion bank’s dividend track record is 194 years, dating back to 1829 when the payouts started. If you invest today, the share price is $119.10 (-0.70% year to date), while the dividend yield is 4.97%. Despite a lower net income, BMO raised its dividend by 6%.
Low-risk commercial model
Enbridge (TSX:ENB) has been a solid energy investment for years, notwithstanding the industry’s volatility. This $100.16 billion pipeline operator isn’t an oil and gas producer but a transporter of energy. The stock’s underperformance (-3.36% year to date) is temporary, given weakening oil prices in 2023.
At $49.47 per share, investors partake in the 7.21% dividend. Besides the high yield, two factors make Enbridge suitable for long-term investors and retirees. The midstream giant has been paying a dividend for 68 years and has increased the dividend for 28 consecutive years.
Enbridge boasts a resilient and low-risk commercial model, beginning with investment-grade customers (95%). The dividend payouts should be safe due to cost-of-service/contracted cash flows (98%). Lastly, about 80% of earnings before interest, taxes, depreciation, and amortization has inflation protections.
Management expects high-interest rates and commodity market backwardation to persist until year-end. However, Enbridge’s strong operating performance and system utilization should overcome the headwinds.
Methodical approach
Reinvest the dividends from BMO and Enbridge to build a substantial nest egg. When retirement day comes, in 10, 15 or 20 years, you should have an enhanced retirement income and can live off the dividends.
