With every passing year, expenses are rising. A single source of income is not enough. Canadians are delaying retirement as it is difficult to estimate how much is enough to live off your investments for 20 to 30 years. In the early days, our grandparents were happy living off their pensions and fixed-income savings. But you have to do more and invest in stocks to increase your passive income.
Stocks you need for a comfortable retirement
The business world has shifted from taking out bank loans to raising money from investors. Business is where the returns are. And to retire comfortably, you have to go with the trend. What you need is a stock that moves in tandem with the economy and gives you a share of the profits as and when it grows. Some of the top dividend-paying stocks are known for giving shareholders a decent share in profit growth and absorbing profit slowdown themselves.
The Canadian economy has some dividend aristocrats that enjoy inelastic demand which keeps revenue stable. They keep improving their efficiency to reduce costs and grow profit. They also keep expanding geographically and by product to boost revenue. This growth helps them grow dividends, while the inelastic demand helps them sustain higher dividend payments. Here are two dividend-paying stocks to help you retire in comfort.
BCE stock
The Canadian telco giant BCE (TSX: BCE) is a dividend aristocrat with a long history of paying dividends. It is now looking to make a record of growing dividends consecutively and has so far completed 15 years of dividend growth.
BCE initiated an accelerated capital program from 2020–2022 that saw negative free cash flows (FCF) and elevated payout ratios. Generally, these are the signs that the company cannot sustain dividends. But BCE was prepared for these negative cash flows as it has been doing a generational upgrade by rolling out 5G networks. Every generational upgrade is costlier than the previous one. But it also has bigger opportunities with a plethora of income-generating options.
After undergoing a generational upgrade, BCE is now restructuring its operations, which calls for layoffs. BCE will eliminate 1,300 jobs, or 3% of its workforce, as it closes its loss-making foreign news bureaus and Canadian radio stations. Bell Media’s adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) fell 36.5% year over year in the first quarter as subscriber and advertiser revenue fell.
Instead, BCE is investing in cloud services, with the acquisition of FX Innovation. The Internet is already the new form of communication, but it is now becoming bigger thanks to the cloud. 5G will connect all devices to the cloud and enable edge devices to perform artificial intelligence (AI) tasks.
All this hints that BCE is focused on dividend growth, and it can help you retire comfortably. You can start now and lock in a dividend yield of 6.4%.
Canadian Utilities
Most energy and utility stocks dropped in May due to cyclicality and lower gas prices. The mid-year is seasonally weak for utilities as electricity consumption falls and rises towards December and January. Now is a good time to invest in Canadian Utilities (TSX: CU) as the stock has dipped 10% from its May high and is closer to its 52-week low of $33.24. You can lock in over a 5% dividend yield.
Canadian Utilities supplies electricity and natural gas to several Canadian households and industries and earns regular income from bill collections. It also produces and stores energy and retails it to electric charging stations. It keeps adding to its energy infrastructure, which in turn brings in more income. The utility has one of the longest history of growing dividends consecutively, for 51 years.
Final thoughts
The above two stocks can grow your dividends annually in line with or more than inflation, relieving the stress of rising prices. The right time to retire is when your dividend payments are equivalent to your monthly expenditure. Start investing, and you will gradually reach this breakeven.
