Launched in 1966, the Canada Pension Plan, or CPP, aims to replace a portion of your income in retirement. Every Canadian resident contributes to the CPP, and the maximum annual contribution amount is $3,867.50 in 2024. Like most other pension plans, you contribute to the CPP throughout your working life and earn a monthly income in retirement.
In 2024, the average CPP payout for a 65-year-old is $816.52, while the maximum payment is $1,364.60. Given the rising cost of living in major Canadian cities such as Toronto and Vancouver, the average CPP payout is insufficient to lead a comfortable life in retirement.
Retirees must supplement their pension payments with other income streams. One low-cost way to supplement the CPP is by investing in blue-chip dividend stocks such as Enbridge (TSX: ENB) and Brookfield Asset Management (TSX: BAM). Let’s see why.
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Is Brookfield Asset Management stock a good buy?
Brookfield Asset Management is among the largest alternative asset managers in the world. It ended the second quarter (Q2) with nearly US$1 trillion in assets under management, raising US$68 billion in the June quarter and US$140 billion in the last 12 months.
Brookfield’s distributable earnings in Q2 rose to US$548 million or US$0.34 per share, lower than estimates of US$0.35 per share. Comparatively, its sales were down 7% year over year at US$916 million.
Brookfield Asset Management expects deal activity to gain pace in the next 12 months as central banks will be reducing interest rates on the back of cooling inflation numbers. In addition to its capital-raising efforts, Brookfield will pursue large-scale transactions and offload legacy assets.
Brookfield Asset Management pays shareholders an annual dividend of US$1.52 per share, indicating a forward yield of 3.7%. Moreover, the stock is priced at 28.7 times forward earnings, which is reasonable.
Brookfield Asset Management ended Q2 with a fee-bearing capital of US$514 billion, up 17% year over year, and aims to increase the figure to US$1 trillion by 2028. Its growth in fee-bearing capital should help improve cash flow visibility and drive dividends higher.
Is ENB stock undervalued?
Enbridge is among the largest companies in Canada and is part of the country’s energy sector. It is a diversified energy infrastructure company with a widening base of cash-generating assets. Since 1995, Enbridge has raised its dividends yearly at an average annual rate of 10%. Today, Enbridge pays shareholders an annual dividend of $3.66 per share, translating to a forward yield of 6.8%.
Earlier this month, Enbridge raised its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) outlook for the year and expects to end the year with a midpoint distributable cash flow guidance of $5.6 per share. It suggests that the energy giant’s payout ratio is 65%, providing Enbridge with the flexibility to lower balance sheet debt.
Additionally, Enbridge is on track to complete its $19 billion acquisition of three natural gas utilities from Dominion Energy by the end of 2024, which should drive future cash flows higher. The company expects to grow its DCF per share by 3% annually through 2026, which should support dividend hikes, too.
