Saving for retirement can be pretty tricky. It’s crucial for individuals and households to have enough wealth to help them live comfortably without having to worry about inflation and the cost of living. While the Canadian government offers a retirement payout via the Canada Pension Plan (CPP), it may not be enough for most retirees.
For example, the average CPP payment for a 65-year-old starting the benefit in 2024 is $816.52. Even if you delay the CPP by five years, the monthly payment will be 42% higher at $1,159.45. It is evident that Canadian retirees should not depend on the CPP for retirement. Instead, they should supplement the CPP with alternative passive-income streams by investing in blue-chip dividend stocks such as Brookfield Infrastructure Partners (TSX: BIP.UN). Let’s see why.
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Average savings in retirement is $270,000
According to a report by Spring Financial, the average retirement savings among Canadians is about $270,000. So, retirees can consider investing 40% of this amount, or about $110,000, in dividend stocks and the rest in lower-risk products such as Guaranteed Investment Certificates, or GICs.
An investment of $110,000 in Brookfield Infrastructure Partners can help you purchase 2,476 shares of the company and earn an additional $5,546 in annual dividends, given its dividend payout of $2.24 per share.
Valued at $20.5 billion by market cap, Brookfield Infrastructure owns and operates a widening portfolio of cash-generating assets across segments such as utilities, midstream, data centres, and transportation. After adjusting for dividend reinvestments, Brookfield Infrastructure stock has returned close to 300% to shareholders in the past decade. However, it trades 21% below all-time highs as investors worry about elevated interest rates and other macro headwinds.
The ongoing pullback allows you to buy the dip and gain exposure to a quality growth stock. In the June quarter, Brookfield Infrastructure reported its funds from operations by 11% year over year, primarily driven by its acquisition of Triton International, among the largest intermodal operators globally.
The company grew its backlog by 15% to US$7.7 billion in the second quarter (Q2), providing enough revenue visibility to shareholders. Additionally, it continues to offload legacy assets and reinvest the proceeds in higher-growth projects. In Q2, it sold over US$210 million worth of assets, while its total recycled capital year to date is much higher at US$1.4 billion.
Brookfield Infrastructure expects to raise US$2.5 billion from asset sales in the upcoming quarters and focus on merger and acquisition opportunities fueling its cash flow and dividend growth. In the last 15 years, Brookfield Infrastructure has raised dividends by 9% annually, significantly enhancing the yield at cost.
Over the long term, Brookfield Infrastructure expects to grow FFO by 10% and annual dividends between 5% and 9%.
The Foolish takeaway
While Brookfield Infrastructure Partners is an excellent stock, investing such a massive sum in a single company is risky. To lower portfolio risk and benefit from diversification, it’s essential to identify a portfolio of blue-chip dividend stocks with a high yield. Alternatively, retirees can further simplify the investment process and invest the money in dividend exchange-traded funds.
