Living a dream retirement need not be just a dream. You can convert it into reality through a structured approach. If you dream of maintaining your current standard of living without having to work towards it, your focus should be to build a passive income. There are various sources of earning that. A houseowner could rent a room on Airbnb. If you have lawn equipment, a boat, a recreational vehicle or any such items, they can also be rented through various apps.
And you can always invest in stocks. You can invest in one stock each for electricity, broadband, food, and pharmacy bills. The TSX has some of the most lucrative dividend stocks that can help you live a worry-free retirement, as these dividends could grow with inflation.
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Three TSX stocks for a dream retirement
The Canada Revenue Agency (CRA) allows you to invest for your retirement through a Registered Retirement Savings Plan (RRSP) that helps you grow your income tax-free. If you compound your returns tax-free by staying invested in RRSP, you can build a sizeable passive income.
Here are three TSX stocks that offer high yield or dividend growth, and all three offer dividend-reinvestment plans (DRIP). The DRIP automates your investments and grows your passive income over time.
Timbercreek Financial (TSX: TF) pays monthly dividends from the interest it collects on short-term mortgages it gives to commercial REITs. As the lender is still small, it is not growing its dividends, but reinvesting the money in the business. However, it offers a high yield of 8.75% as short-term loans help it increase its loan turnover and earn higher processing fees. The lender is expanding its loan portfolio by securing financing through securitization while maintaining credit risk. It could continue to pay dividends for the next 10 years.
Dividend-growth stocks
Telus (TSX: T) pays quarterly dividends from the subscription money it gets from mobile and broadband plans. The 5G revolution will significantly increase the number of devices connected to the internet and open a range of supplementary services like cloud and secure connection. The company has been growing its dividend at a compounded annual growth rate (CAGR) of 7% and has the potential to keep growing it, but maybe at a slower rate for the coming 10 years. The stock is trading at its pandemic low, creating an opportunity to lock in a 7% yield.
Manulife Financial (TSX: MFC) pays quarterly dividends from the insurance premiums it collects. It has been growing its dividend at a 10% CAGR. However, I expect this growth rate to slow to 9%. While its growth rate is high, its dividend yield is around 4.36%. The stock doesn’t give much capital appreciation but can help diversify your passive-income stream.
How to build a dream retirement portfolio
| Stock | Dividend Yield | Share Price | Share Count | Total Dividend in 2024 | Dividend CAGR | Total Dividend in 2034 |
| Telus Corporation | 7.16% | $21.73 | 460.00 | $703.98 | 6% | $2,294.00 |
| Timbercreek Financial | 8.75% | $7.9 | 1267.00 | $874.23 | 0% | $1,732.15 |
| Manulife Financial | 4.36% | $36.7 | 272.00 | $435.20 | 9% | $2,203.00 |
| Annual Dividend | $2,013.41 | $6,229.15 |
If you invest $10,000 each in the three stocks, they can give you an annual dividend of $2,000. However, if you delay collecting payout and instead opt for DRIP, your annual dividend amount could grow to $6,230, which equates to more than $500 per month.
You might wonder how I arrived at the 2034 dividend amount. It is based on the assumption that these companies maintained their dividend CAGR, and their stock price grew in a similar pattern as in the last 10 years. The DRIP kept buying more income-generating shares, increasing the share count.
Investor takeaway
If you are in urgent need of money, you can take a payout, and when your financial condition improves, continue with the DRIP. I would suggest investing more to compensate for the years when dividends did not compound.
