3 Stocks Retirees Should Absolutely Love

Retirees aiming for a solid mix of capital gains and dividend returns should consider these three stocks.

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Passive income is very important for retirees who rely on it. Dividend stocks are a great place to earn passive income. However, when you only focus on dividend income as an investment factor, you can sacrifice business quality for a high yield.

Yield is important but it’s not everything

Stocks with overtly high yields can be risky. Elevated yields indicate the market is weighing severe business or financial risks. For this reason, several high-yielding stocks in Canada have been forced to reduce or cut their dividends in the past few years.

What is the point of earning a big yield if the dividend gets cut or the stock significantly depreciates? Retirees should aim for a solid mix of capital gains and dividend returns.

Preserving and growing your capital should be equally as important as earning income. If a mix of growth and income appeals to you, here are three stocks retirees could contemplate today.

A natural gas utility stock for retirees

For a relatively boring utility and midstream business, AltaGas (TSX:ALA) has delivered good returns. The stock is up 60% in the past five years. Add in dividends, and shareholders would have earned a ~100% total return.

AltaGas has transformed over the past few years. Today, 55% of its income comes from a solid natural gas utility portfolio in the U.S. Not only is this a very steady segment, but it has been growing by a high single-digit rate. AltaGas’s midstream segment is also well positioned with new LNG and pipeline capacity in Canada.

This company has drastically reduced debt in the past few years. Likewise, it has a modest payout ratio that can support 5-7% dividend growth in the years ahead.

ALA has as a 3.9% dividend yield today. The combination of an improving balance sheet, a solid business, and a growing dividend make this a good bet for a retiree’s portfolio.

A top energy stock

Canadian Natural Resources (TSX:CNQ) is about as good a stock for passive income that you will find in Canada. So long as you are comfortable with the fact that it is an oil stock (which can be volatile), it deserves a place in a retiree’s portfolio.

This is an exceptional company. CNQ has grown its dividend by a 21% compounded annual growth rate over 24 years. The company has several decades of energy reserves that it can unlock at incremental expense. It also has a highly invested executive team and chairman, so incentives are aligned with shareholders.

CNQ just hit its $10 billion debt target. That means it plans to deliver all excess cash back to shareholders. As a result, investors could see additional special dividends or substantial share buybacks. After a recent pullback, this stock is yielding close to 5.5%.

A bit of growth, value, and income for a retiree

Another stock ideal for retirees is Calian Group (TSX:CGY). The stock has a nice combination of growth, value, and income. Calian provides a diverse array of services in healthcare, IT/cybersecurity, training, and specialty technologies.

The Canadian government and military are major customers, as is NATO and the Canadian Space Agency. These are very strong counterparties that help secure its growing backlog of contracts and projects.

Calian has been growing by a high teens rate for the past five years. It expects a big year of 30%-plus earnings before interest, tax, depreciation, and amortization (EBITDA) growth in 2024.

Despite the strong growth, this stock only trades for 10 times earnings. It has a nice 2% dividend yield. For a solid, growing business with a nice income component, Calian is a great buy for retirees today.  

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robin Brown has positions in Calian Group. The Motley Fool recommends Calian Group and Canadian Natural Resources. The Motley Fool has a disclosure policy.

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