Retirement is the time when you stop working and start living. How you use your money in this 40-year work-life period determines your golden years. As you come closer to retirement, be careful where you allocate your funds. You cannot afford to lose your life-long savings to volatile markets. At the same time, investing all your money in fixed-income securities will deplete your savings as inflation grows. Dividend aristocrats give you a middle ground between risk and return.
How to secure your golden years using investments
Dividend aristocrats have a robust business model that ensures regular dividend payments and annual dividend growth. Their stock price may fluctuate and impact your invested amount, but the dividend income will keep flowing for a long time. You can mitigate the stock price fluctuation by investing in these stocks at their 52-week low.
Another risk with dividend stocks is their payouts depend on the health of the sector and business environment. Many commercial REITs slashed their distributions this year to pay their elevated mortgages amid low occupancy. Similarly, some oil stocks slashed dividends during the pandemic as a sudden dip in oil demand pulled the oil price below the US$35 production cost. You can mitigate the dividend risk by diversifying your dividend investments across different sectors and asset classes that are not co-related.
Two stocks to secure your golden years
Here are two income-generating stocks from different sectors whose performance is uncorrelated.
TC Energy stock
TC Energy (TSX:TRP) is a natural gas pipeline company. Its stock is trading near its 52-week low due to concerns about a lawsuit. The company acquired Columbia Pipeline in 2016, and the latter’s shareholders claim that TC Energy did not give them a fair value. The court ruled in the shareholders’ favour, bringing a claim of around $400 million, which will be borne by TC Energy and Columbia Pipeline’s former executives.
TC Energy is awaiting the court’s final order on its contribution to the claim and will then consider whether to appeal. Nevertheless, this lawsuit won’t affect TC Energy’s dividends, which increased at a compounded annual growth rate (CAGR) of 7%. It plans to grow its dividends by 3-5% in the coming years.
The lawsuit has created a good opportunity to buy the stock at a cheaper price and lock in a 7.3% yield. So if you invest $20,000 in this stock today, it could give you $1,458 in annual dividends. TC Energy may grow the dividend annually by 3%, beating Canada’s average annual inflation of 2%.
While TC Energy stock is influenced by oil and natural gas prices, CT REIT (TSX:CRT.UN) stock price is affected by property prices. CT REIT maintains and develops retail stores for its parent Canadian Tire in return for rent. Canadian Tire has a weighted average remaining lease term of 8.8 years and agreed to a 1.5% average annual rent escalation. Eight years of the REIT’s distribution payouts are secure as the retailer acquires 92% of the REIT’s gross leased space. The REIT leases the remaining stores to third-party tenants and keeps its occupancy above 99%.
Canadian Tire’s rent escalation plus store expansion and new store addition allow CT REIT to grow its payout at a CAGR of over 3%, hedging your passive income from inflation.
The CT REIT stock is trading closer to its low as high mortgage rates keep its interest expense high. Now is a good time to lock in a 5.86% yield for a long time. So if you invest $20,000 in this stock today, it could give you an annual payout of $1,173.90.
Passive income from the two stocks
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Together, these two stocks can enhance your passive income and reduce the downside risk of your invested amount.