When you know your destination, you can plan your journey accordingly and make changes per the market situation. When planning for retirement, you keep changing your pace and rhythm depending on how far you are from retiring and investment opportunities at hand. In a computer game, you get a power pill that increases your speed. In a bear market, Canadian dividend stocks act as that power pill to help you accelerate your investment journey.
How do Canadian dividend stocks help you secure retirement?
The Canadian stock market’s strength is its dividend stocks. Some companies in the bank, energy, telecom, and infrastructure sectors have decades of dividend-paying history, with dividends growing most of these years.
Only a company with stable and assured cash flows can give such dividends. This is because the priority of any company is to reinvest in the business for growth and expansion. Only after they meet this need do they give dividends to shareholders.
In your retirement, you need a significant emergency fund as you will no longer have active income and a source of passive income that can grow with inflation. Dividend stocks can fulfill both needs. The share price of dividend aristocrats is relatively stable, providing a lump sum amount in the portfolio. And the payouts can bring passive income.
A dividend stock to secure your retirement
Consider investing in dividend stocks and reinvesting the earned dividends through the Registered Retirement Savings Plan (RRSP). That will save you on dividend tax. And if you reinvest through a company’s dividend reinvestment plan (DRIP), you even save on broker commission. The commission and dividend tax might seem small, but when compounded it can become a significant amount.
One stock has a strong history of paying regular quarterly dividends and growing them annually, and it also offers DRIP.
BCE stock
Canada’s telecom giant BCE (TSX:BCE) has the advantage of being an essential service with 5G infrastructure spread across Canada. Building such an infrastructure takes years and significant capital spending. It acts as an entry barrier for new entrants. And the other two telcos that compete with BCE do not engage price wars that could otherwise hurt profits.
As the 5G technology use case builds upon the internet of things, autonomous cars, and drones, subscription-based cash flow will increase and help BCE support the 5% dividend growth it has maintained for more than 11 years.
How to earn regular passive income from dividend stocks
The best time to buy dividend stocks is when their stock price is low. That way, you can access a quarterly payout at a discounted price. For BCE, you can access a $3.87 annual payout that could grow at 5% for years to come for $52 a share. In percentage terms, that’s a 7.4% yield. Moreover, you can also enroll in the DRIP and keep adding to your income-generating BCE shares. This is how you make money from money.
| Year | BCE Stock Price 3.2% CAGR* | Annual Investment | BCE DRIP Shares | BCE Share count | BCE Dividend per share (5% CAGR) | Total dividend |
| 2024 | $52.00 | $10,000.00 | 192 | 192 | $3.87 | $743.04 |
| 2025 | $53.66 | $743.04 | 14 | 206 | $4.06 | $837.08 |
| 2026 | $55.38 | $837.08 | 15 | 221 | $4.27 | $942.94 |
| 2027 | $57.15 | $942.94 | 16 | 237 | $4.48 | $1,061.76 |
| 2028 | $58.98 | $1,061.76 | 18 | 255 | $4.70 | $1,199.52 |
| 2029 | $60.87 | $1,199.52 | 20 | 275 | $4.94 | $1,358.28 |
| 2030 | $62.82 | $1,358.28 | 21 | 296 | $5.19 | $1,535.11 |
| 2031 | $64.83 | $1,535.11 | 24 | 320 | $5.45 | $1,742.55 |
| 2032 | $66.90 | $1,742.55 | 26 | 346 | $5.72 | $1,978.34 |
| 2033 | $69.04 | $1,978.34 | 29 | 375 | $6.00 | $2,251.37 |
| 2034 | $71.25 | $2,251.37 | 32 | 407 | $6.30 | $2,565.66 |
I have made a table to give a rough idea of how your money will grow in a DRIP inside an RRSP. A $10,000 investment today can buy you 192 shares of BCE. Here onwards, your DRIP will compound the dividend and grow your share count to 407 in 10 years. Assuming BCE maintains its 5% dividend growth rate, a $10,000 investment today can give you over $2,500 in annual payout every year from 2034.
The benefit of investing at the low end is the probability of a further decline is reduced.
