As equity markets deliver inflation-beating returns, retirees should consider investing in stocks despite the risks. They would be prudent to invest in stocks with solid underlying businesses that generate stable and predictable cash flows. Considering these factors, here are my three top picks.
Enbridge
Enbridge (TSX:ENB) operates a highly regulated midstream energy business and has a strong presence in the growing renewable energy space. Commodity price fluctuations will impact only 2% of its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization), while around 80% is inflation-protected. So, the company’s cash flows are stable and predictable, irrespective of the economic outlook. The company’s financial position also looks healthy, with its liquidity at $12.4 billion as of June 30.
Meanwhile, the midstream energy company has paid dividends for 68 consecutive years. Besides, it has hiked its dividends at a CAGR (compound annual growth rate) of 10% for the previous 28 years. Its forward yield currently stands at 7.58%.
Further, Enbridge is progressing with its $17 billion in secured growth projects, which could continue to drive its financials in the coming years. Along with these investments, operational optimization, favourable rate revisions, and organic growth could boost its adjusted EBITDA at an annualized rate of 4-6% through 2025 and around 5% after that. So, I believe Enbridge’s future payouts are safe, thus making it an ideal buy for retirees.
Fortis
Another TSX stock that would be ideal for retirees is Fortis (TSX:FTS), a utility company that services 3.4 million customers. With 93% of its assets involved in the transmission and distribution business and long-term contracts protecting 99% of its assets, the company consistently delivers stable financials. It has provided an average total shareholders’ return of 10.7% over the previous 20 years. Despite the challenging environment, the company is trading 1.6% higher this year.
Meanwhile, the utility company is expanding its rate base and has planned to invest around $22.3 billion from 2023 to 2027. These investments could expand its rate base at a CAGR of 6.2%, thus supporting its financial growth. Amid these growth initiatives, Fortis, which has raised its dividends for the previous 49 consecutive years, is confident of increasing its dividends at an annualized rate of 4-6% through 2027. Besides, it offers a forward dividend yield of 4.23% and trades 1.3 times its book value.
BCE
With telecommunication companies enjoying stable and predictable cash flows due to their recurring revenue streams, I have selected BCE (TSX:BCE) as my final pick. Meanwhile, digitization and growing remote working and e-commerce have raised the demand for telecommunication services. Amid the growing demand, BCE adopted a three-year aggressive capital investment strategy, investing around $14 billion from 2020 to 2022. Supported by these investments, the company has expanded its 5G, 5G+, and broadband infrastructure across Canada.
Meanwhile, the telecom company’s management has announced it is lowering its capital intensity this year, which could provide more free cash flows to reward its shareholders. Notably, the company has raised its dividends by over 5% yearly for the previous 15 years. It currently pays a quarterly dividend of $0.9675/share, translating its forward yield to 6.87%. Given its growth prospects, stable cash flows, and high yield, BCE would be an excellent buy for retirees to enjoy a risk-free passive income.
