Who says you have to cash out all your investments once you retire? Moving into the next phase of your life, you have all your life’s savings at your disposal. And you should invest this amount wisely and not into too risky bets that will wipe out your savings. A higher allocation in fixed deposits is a good option, but that alone won’t help your savings fight inflation. While stocks are risky, there are some resilient, low-volatility stocks retirees will absolutely love. These stocks can help you beat inflation and give you some extra money for recreational purposes.
Source: Getty Images
Three stocks retirees will absolutely love
Warren Buffett sets an example that life begins at 65. He earned more than 90% of his wealth after he reached the age of retirement. Instead of making mistakes and learning from them, it is wiser to learn from others’ mistakes and invest cautiously. Here are three stocks that can enhance your retirement savings.
Enbridge stock
When your goal is retirement, dividend stocks are an absolute yes, as they can give you payouts every quarter. Now is the time for you to spend, and Enbridge (TSX:ENB) can help you avoid spending recklessly. If you have $50,000 in your Tax-Free Savings Account (TFSA), you can allocate $12,000 to Enbridge and start taking an annual payout of $834 in four quarterly installments. The stock has a 6.8% yield at the time of writing this article. And Enbridge grows dividends annually by 3%. The management plans to increase dividends by 5% from 2027 onwards, adjusting your payouts to Canada’s 3% average inflation.
You need not worry about the company’s ability to pay dividends. Even in the pandemic, it maintained its payout ratio at 60 to 70% of distributable cash flow (DCF). The company can grow its dividend by 5% as its acquisition of three U.S. gas utilities will add to its DCF. Your $12,000 investment amount could be recovered in over 11 years from dividend payouts. And if you need a lump sum, you can even sell Enbridge shares, which trade within the $40-$55 range.
Telus stock
Telus Corporation (TSX:T) is another good dividend stock offering a 7% yield at the time of writing. The telecom stock increases its dividend by 3% every six months. While Enbridge dividends are safe, Telus is seeing challenging times as high interest rates have pushed its debt and dividend payout ratios above its guided range. If things worsen, the management could slow or pause its dividend growth till debt becomes manageable and ratios return to the guided range.
The Bank of Canada’s rate cuts could help Telus improve its debt situation. While there is a risk, the stock market has discounted its stock price by 25%, giving you an opportunity to lock in a higher yield. Buying the dip also reduces the risk of a downside. If you ever decide to sell the stock, you will probably sell it at a profit. In either case, a 7% yield is better than term deposit interest.
And if Telus continues to grow its dividends, you can get inflation-adjusted payouts, which is not possible in fixed deposits.
Constellation Software
While investing in dividend stocks is common in retirement, you can also invest in a resilient growth stock like Constellation Software (TSX:CSU). The company’s business model allows you to compound your returns at a 20% compounded annual growth rate. The software firm acquires small vertical-specific software companies with assured cash flows from its clients. It uses these cash flows to buy more such companies, making money from money. Even if a few of its acquisitions fail, the sheer volume of acquisitions can absorb those losses and generate a positive net return.
To buy one share of Constellation Software, you have to shell out above $4,100. But with the speed at which the stock is growing, the stock price could double to over $8,000 in five years.
You can invest in the above stocks without hesitation, as they can help you earn market-beating and inflation-adjusted returns with low risk.
