Retirees can consider investing in blue-chip dividend stocks to create a passive-income stream and supplement benefits such as the Canada Pension Plan, or CPP. Canadian retirees should understand that the amount you receive via pension plans such as the CPP depends on several factors, such as the age you decide to start the pension, your average earnings throughout the work life, and the number of years you have contributed to this plan.
In 2023, the maximum monthly amount an individual starting the CPP at the age of 65 will receive is $1,306.57, while the average monthly payout is $772.71.
It’s quite evident that the CPP is not sufficient to help you lead a comfortable life in retirement. Canadians need to create alternative income streams to supplement the CPP. One low-cost way is by holding high-dividend TSX stocks such as Enbridge (TSX:ENB) and Toronto-Dominion Bank (TSX:TD).
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Is Enbridge stock a good buy right now?
Enbridge, one of the world’s largest energy infrastructure companies, offers investors a tasty dividend yield of 7.6%. Moreover, these payouts have risen at an annual rate of 10% in the last 28 years, showcasing the resiliency of its cash flows.
Enbridge’s cash flows are tied to long-term contracts that are indexed to inflation. So, the TSX energy giant is almost immune to fluctuations in commodity prices. Its vast network of pipelines provides Enbridge with a competitive moat, allowing it to generate cash flows across market cycles.
Investors were worried after Enbridge disclosed its intention to acquire the utility assets from Dominion Energy for US$14 billion. There is a good chance Enbridge will have to increase balance sheet debt to fund the acquisition, resulting in higher interest payments amid rising bond rates.
However, with a payout ratio of less than 70%, Enbridge has room to reduce debt over time while investing in growth projects and driving future cash flows higher.
According to consensus price target estimates, the TSX stock trades at 16 times forward earnings and is forecast to surge almost 20% in the next 12 months.
What is the target price for Toronto-Dominion Bank stock?
A TSX banking heavyweight, Toronto-Dominion Bank stock is down 22.5% from all-time highs, offering shareholders a dividend yield of 4.7%. A tepid lending environment and the threat of an upcoming recession have acted as headwinds for TD Bank and its peers, driving shares lower in the past two years.
In the fiscal third quarter (Q3) of 2023 (ended in July), TD reported earnings of $3 billion, down 8% year over year. Comparatively, adjusted earnings were down just 2% at $3.7 billion in Q3. The company also ended Q3 with a common equity tier-one (CET1) capital ratio of 15.2%, the highest among TSX peers. The CET1 ratio helps analyze a bank’s ability to tide over an economic downturn, and a higher ratio is favourable.
Priced at 10.3 times forward earnings, TD Bank stock is very cheap and trades at a discount of 10% to consensus price target estimates. After accounting for dividends, total returns may be closer to 15%.
