One should plan to have a steady source of passive income in retirement to maintain the same lifestyle they enjoyed prior to their retirement. Meanwhile, one of the convenient ways to earn a stable passive income is to invest in quality dividend stocks. Considering the risk aversion of retirees, here are my three top picks.
Fortis
Fortis (TSX:FTS) is a utility company serving around 3.4 million customers, meeting their electric and natural gas needs. With 93% of its assets engaged in low-risk transmission and distribution business and 99% of its assets underpinned by long-term agreements, the company generates stable and reliable cash flows, irrespective of the economic outlook. Supported by its stable cash flows, the company has raised its dividends for 49 years. It currently rewards its shareholders with a quarterly dividend of $0.565/share, translating to a forward yield of 4.19%.
Further, the diversified utility company is progressing with a $22.3 billion capital-investment plan, growing its rate base at a CAGR (compound annual growth rate) of 6.2% through 2027. Amid rate base expansion and strong execution, the company’s management hopes to raise its dividends at an annualized rate of 4-6% for the next five years. So, considering its stable cash flows, impressive track record of dividend growth, and healthy outlook, I believe Fortis would be an ideal buy for retirees.
BCE
Telecommunication companies are one of the top defensive sectors to have in your portfolio due to the essential nature of their business. These companies enjoy stable and reliable cash flows due to their recurring revenue sources. So, I am selecting BCE (TSX:BCE), one of Canada’s three top telecommunication companies, as my second pick.
The company posted its second-quarter performance earlier this month, with its top line growing by 3.5% to $6.07 billion. A 7% increase in residential internet revenue and a 4.4% rise in wireless service revenue drove its overall revenue. Amid the topline growth, the telecommunication company’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) increased by 2.1%. It also generated free cash flows of $1.02 billion, thus making its dividends safe.
Meanwhile, BCE has raised its dividends by over 5% annually for the previous 15 years, with its forward yield currently at 6.98%.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS), which has been paying dividends since July 1833, is my final pick. Amid the weakness in the banking sector, the company has lost around 22% of its stock value compared to its 52-week high. However, I believe the correction has provided an excellent entry point for investors.
The Canadian bank has strengthened its financial position through a double-digit customer deposit growth in the April-ending quarter. Its liquidity coverage ratio increased to 131% from 122%, which is encouraging in a high interest rate environment. After posting its second-quarter earnings, the company’s management raised its quarterly dividend by $0.03/share to $1.06, depicting the confidence of the company’s management in its financials. Its forward yield currently stands at 6.71% and trades at an attractive next 12-month price-to-earnings multiple of 8.6, making it an attractive buy.
