Retiring in a weak economy can be a nightmare as many pensioners see their life savings significantly reduced. And if you withdraw your investments in a bear market, you are booking a loss. But the other way to look at the current market is the prospect of cheap dividend stocks and high interest on bank deposits. As a pensioner, if you have too much money stored in bank deposits, you can diversify it to earn a higher tax-free passive income. The bank might give you 5–6% interest that is taxable. But cheap dividend stocks in your Tax-Free Savings Account (TFSA) can give you a 6–7% dividend yield and a chance to grow your invested amount.
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How pensioners can boost their TFSA passive income with cheap stocks
If you are living off a pension, you know it is not enough to survive in an economic crisis. You need a passive income that can grow with the economy.
The high interest rate has pulled down the prices of dividend stocks. Now is the peak time to switch from deposits to dividend stocks as the interest rate is at its peak and will begin to fall from next year. And when that happens, the stock market will pick up momentum and recover from the two-year-long bear momentum.
If you have some bank deposits earning less than 5% interest in your TFSA or growth stocks that have performed well, it is time to sell them at their cyclical peak. You can use the sales proceeds to buy dividend stocks at a cheap price. This rebalancing of your TFSA portfolio won’t attract any tax, and you can boost your passive income.
Dividend stocks on a Black Friday sale
The bear market momentum has created a Black Friday-like sale where dividend stocks are available at a 20–30% discount.
Telus stock
Telus Corporation (TSX: T) stock is trading at a 27% discount from its peak of around $34. The stock began descending in April 2022 when the Bank of Canada started its aggressive interest rate hike. While the stock price fell, the company increased its dividend per share by 7.3% in 2023. This combination of falling stock price and rising dividend increased its yield to 6.25%.
Telus has healthy cash flow coming from wireless subscriptions and 5G upgrades. It aims to grow its dividend by 7–10% annually till 2025. Now is a good time to invest a large amount in this stock while it trades at its low. A $20,000 investment in Telus can earn you around $1,260 in annual passive income next year if the company grows dividends by 7%. This amount could keep growing with the economy.
RioCan REIT
While Telus can give you dividend growth, its payouts will be quarterly. RioCan REIT (TSX: REI.UN) can give you monthly payouts but no dividend growth. The REIT’s stock price is trading at a 31% discount from its April 2022 peak. Like all dividend stocks, RioCan’s share price fell as the interest rate hike began.
RioCan has a debt of over $7.4 billion, 9.5 times its annual operating profit. While it has high debt, most of its properties are in the Greater Toronto area, where property prices are higher than in any other place in Canada. The prime location of the property allows RioCan to charge a higher rent.
Just three years back, RioCan slashed its distributions because pandemic lockdowns impacted its rental income. But this is no longer the case. The occupancy remains high, and the distribution cut has made its payout manageable. It currently uses 59% of its operating cash flow to pay the distribution to shareholders. The REIT has ample cash left for debt payments and other expenses.
Another distribution cut is unlikely for RioCan. Hence, you can make the most of the 30% discount and buy in bulk. A $20,000 investment in RioCan now can earn you over $1,220 in annual passive income. And when the real estate market revives, your invested amount could also surge.
