Retirees or those nearing retirement tend to prefer dividend-paying stocks for their passive income. While there is nothing wrong with this investment approach, it can be at the expense of a portfolio’s total returns.
Earning a high dividend yield can be attractive for the prospect of an elevated tangible cash return. However, dividend income can often come at the cost of poor and even declining stock performance. What is the point of earning an 8% dividend yield if your capital declines by 10-20% (or more)?
As a result, many retirees are better off looking for stocks that provide a combination of steadily growing income and capital returns over time. If you are looking for some stock gems that can provide solid returns over the long term, here are three to contemplate today.
A resilient retailer for retirees
Alimentations Couche-Tard (TSX: ATD) is a well-managed, resilient business. Travel convenience and fuel/charging stations are essential services that everyone needs. This company has delivered exceptionally steady +13% compounded annual stock returns over the past five years.
Couche-Tard has everything you want in a long-term stock. It has a highly invested executive team, a track record of shareholder-friendly decisions (i.e., dividend growth and aggressive share buybacks), a history of smart capital allocation, and a strong portfolio of assets/brands.
Couche-Tard only yields 0.9% today. However, it has increased its dividend by a +25% annual rate over the past decade. Likewise, whenever the stock sees weakness, management is eager to buy up stock. It has already bought up 13% of its shares over the past few years.
This company is looking to double earnings over the next four years, so shareholders have a good chance of doubling their money in that time.
An energy stock that can withstand the cycles
Another good growth stock for retirees is Canadian Natural Resources (TSX: CNQ). Certainly, this is a little bit on the riskier end because CNQ is a commodity-reliant business. However, it has established a business that can be resilient through nearly any market cycle.
It just hit its long-term debt target. Now, it plans to return 100% of its excess cash flows to shareholders. The company has decades (like seven decades) of reserves that it can unlock with only incremental expense. Those reserves are hardly factored into the stock price today.
Likewise, the company is known to be shareholder friendly. Its chairman and executive team own a huge stake in the business.
It yields only 3.6% today. However, this stock is primed for more share buybacks, potential special dividends, and dividend growth ahead.
A transport stocks retirees can own for growing earnings and dividends
A final quality stock for retirees is TFI International (TSX: TFII). It shares many of the same features as the above stocks: A highly invested chief executive officer/management team, a history of great capital allocation, a solid balance sheet, and room to continue delivering strong returns.
TFI is a transport leader in Canada. It has a significant opportunity to be a strong player in the United States. This company has room to grow earnings by improving operational efficiency. Likewise, the transport market remains very fragmented, so it has no shortage of acquisitions.
TFI only pays a minuscule 1% dividend yield. Yet, it has grown its dividend by a nice +12% compounded annual growth rate. For a stock with a smart business and solid growth ahead, TFI is a great bet for retirees.
