The Tax-Free Savings Account (TFSA) is the perfect place to invest for retirement, as all earnings inside are tax free, including dividends, interests, and price gains.
For some retirees, a serene retirement means having predictability and stability in their investments. If so, looking to buy a blue-chip stock like Fortis (TSX:FTS) would be a good idea.
Fortis stock
As a diversified regulated utility, Fortis makes resilient earnings through the economic cycle, even when there’s a recession. For example, during the pandemic year of 2020, it increased its adjusted earnings per share by about 1%.
Because it makes quality earnings, it has also been able to raise its dividend for half a century non-stop. For your reference, its five-year dividend-growth rate is 5.8%. That said, in a higher interest rate environment, it experiences a higher cost of capital that reduces its growth rate. For example, its most recent dividend hike last September was 4.4%.
Over the next few years, Fortis has a bunch of primarily low-risk capital projects lined up for stable growth, which will support healthy dividend growth of 4-6% per year. At $54.45 per share at writing, it offers a dividend yield of 4.3%, and analysts believe the stock is fairly valued.
With this holding, retirees can expect it to increase in value steadily and increase its dividend by at least 4% per year for the long haul. If you’re buying shares today, it’s possible to earn long-term returns of more or less 9%. For a better margin of safety, Canadian investors can look to buy shares on a dip closer to $50 per share.
For some retirees, an approximate 9% return may not be enough. To sail into a serene retirement to ensure you have sufficient money to live the retirement lifestyle you want, you might need to target higher returns with a long-term investment such as Brookfield Infrastructure Partners (TSX:BIP.UN).
BIP.UN and FTS 10-Year Total Return Level data by YCharts on an initial investment of $10,000
Brookfield Infrastructure Partners
With higher interest rates since 2022, Brookfield Infrastructure Partners stock has underperformed Fortis stock. However, in the long run, as shown in the 10-year total return chart above, the global infrastructure stock has outperformed Fortis, delivering annualized returns of about 14% versus Fortis’s 9.2%.
Likely due to its more leveraged nature, today, in a higher interest rate environment, Brookfield Infrastructure Partners trades at a larger discount than Fortis. Analysts believe BIP trades at a discount of about 22%. As a result, it also offers a higher cash distribution yield of 5.3%.
Going forward, management continues to target to grow the funds from operations per unit by more than 10%, coming from sources including inflation and reinvested cash flow. Indeed, BIP has the potential to increase retirees’ income faster. For your reference, its five-year cash-distribution growth rate is 6.3%, while its last cash-distribution hike was 5.9% in February.
Of course, there’s nothing stopping investors from buying both stocks in their TFSAs for a blended profile of their safety and growth.
