Canadian retirees are stressed out. And granted, there’s certainly a good reason. The market is rebounding a bit, but we still aren’t out of the woods yet when it comes to a potential recession. This could send the market into a tailspin once more. Further, Canadians young and old are suffering through high interest rates coupled with inflation that’s risen astronomically in the last year or so.
Retirees need every dime they can grasp, which is why dividend stocks have been so popular these days. You can lock up fixed income and gain more than simply investment in Guaranteed Investment Certificates (GIC).
How to make a dividend income stream
If you’ve been investing for a while, it’s likely that you’re investing on a regular basis. But how regular? One of the best investment strategies that many investors haven’t latched onto is the dollar-cost averaging strategy. And this can be incredibly lucrative for retirees.
The dollar-cost averaging method is where you invest the same amount every single month. Rather than track and chart and get complicated, over time, you should see your investments “average” out. For instance, shares might be $15 in July, drop to $10, then climb back to $13 month after month. Over time, you’ll get a deal on some purchases yet see returns rise steadily overall.
This is a great method as well when looking for dividend income. Some months, you’ll receive higher yields; other times, you’ll get lower ones but with higher returns. Do this every month, and you’ll also squirrel away an immense amount of savings to be used for retirement.
Three options to consider
If you’re going to invest in dividend stocks in retirement, you’ll then want to make sure these stocks will actually rise at a steady rate. That means looking at dividend stocks that have proven to climb steadily, no matter what the market does.
Options to consider would be those in the defensive sectors of healthcare, defence stocks, and infrastructure. For me, I would go with Extendicare (TSX: EXE), CAE (TSX: CAE) and Brookfield Infrastructure Partners (TSX: BIP.UN).
Each of these stocks provides stable growth and dividends for investors. They also receive government backing, which allows for stability that many other companies on the market simply do not receive. Next, let’s look at how much you could be making.
How these stocks can make an income stream
Let’s say you start putting aside $500 per month in these dividend stocks. You then see shares rise at the compound annual growth rate (CAGR) they’ve enjoyed over the last decade. On average for these stocks, that comes out to about 5.5%. Meanwhile, you can add on your dividends, choosing to save them or reinvest them.
Let’s say you were to invest $6,000 into these dividend stocks over the next five years to create a steady dividend income stream. We’ll look at how much that could be while seeing dividends remain stable during that time. The dividend would average out to about $1 per share, with the average share worth $78.
| INVESTMENT | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | PORTFOLIO TOTAL |
| $6,000 | $78 | 77 | $1 | $77 | $6,077 |
| $12,000 | $81.90 | 150 | $1 | $150 | $12,435 |
| $18,000 | $86 | 220 | $1 | $220 | $19,140 |
| $24,000 | $90.29 | 286 | $1 | $286 | $26,108.94 |
| $30,000 | $94.80 | 349 | $1 | $349 | $33,434.20 |
In just five years, you’ll have another $3,434.20 in your portfolio. You’ll also have made $349 in passive income annually. This is a low amount now, but it will only increase as you continue to drip-feed into these stocks for decades. That will make the perfect dividend income stream for retirees wanting consistent results.
