Do you want to increase your CPP (Canada Pension Plan) by $6,877 each year? Well, if you have already started drawing a pension, you are out of luck, as individuals are stuck with modest increases each year.
Alternatively, you can boost the CPP payout by $6,877 annually if you have yet to start the payout. You can deploy a simple strategy to delay your pension payouts and benefit from higher retirement benefits in the process. Let’s see how.
Delay the CPP until age 70
The maximum CPP payment for a 65-year-old retiree beginning the payout is $1,364.60. However, for every month the CPP payment is delayed, the benefits will increase by 0.8%. It means if you delay the CPP for five years, your payout will increase by 42% which is quite sizeable.
For instance, the maximum payout for a 70-year-old starting the CPP in 2024 will be $1,937, which is $573 above the average payment. On an annual basis, the CPP increases by $6,877.
Generally, if you are in a position to delay the CPP, you may already have other passive-income sources to lead a comfortable life in retirement. One easy way to secure a passive income stream for life is by investing in dividend growth stocks such as Canadian National Railway (TSX:CNR). Let’s dive deeper.
Increase your effective yield over time
Let’s assume you invested $25,000 in Canadian National Railway stock back in March 2004. This amount would have let you buy 1,930 shares of the company. In March 2004, CNR stock offered you a quarterly dividend of $0.04875. So, annual dividends for 1,930 shares of CNR would have totalled $376.35, indicating a forward yield of 1.50%.
However, in the last 20 years, these payouts have risen by 15% annually. Today, CNR stock pays you a quarterly dividend of $0.845. So, 1,930 shares would help you earn $6,523 in annual dividends, increasing your yield at cost to 26%.
In addition to a widening dividend base, CNR stock has surged 1,270% in the last two decades, turning a $25,000 investment into $340,000.
Is CNR stock a good buy?
Valued at $113 billion by market cap, CNR stock remains a top investment choice today despite its market-thumping gains. A robust rail network provides Canadian National Railway with a wide competitive moat.
CNR continues to expand its presence and recently inked a deal to acquire Iowa Northern. The acquisition will help CNR gain traction in the Midwest region south of the border while providing customers better access and boosting the company’s agricultural revenues.
In 2023, CNR generated free cash flow of $3.9 billion. It also invested over $3 billion in capital expenditures, which should drive future earnings and dividends higher.
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The TSX giant paid shareholders an annual dividend of $2 billion, indicating a payout ratio of less than 60%. So, CNR has the flexibility to target acquisitions, reduce balance sheet debt, and raise dividends further.
Canadian National Railway continues to invest in its rail car fleet, track maintenance, and capacity expansions. Priced at 22 times forward earnings, CNR stock trades at a reasonable valuation and should outpace the broader markets in 2024 and beyond.
