If you want a worry-free retirement, the best thing you can do is live frugally and start saving early. The process of compounding wealth takes time, and lots of it. However, as time increases, capital increases, and wealth creation accelerates at a faster pace.
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Start investing early and save regularly for retirement
The best thing you can do is consistently save a good portion of your monthly employment income (like 5-15%) and regularly invest it in quality stocks. I like to focus on stocks that actually re-invest most (or all) of their excess cash back into the business. That can really accelerate the power of compounding, both for the business and the stock.
However, many people closer to retirement want to own stocks that generate safe passive income. Fortunately, Canada has many avenues to collect passive income from stocks. Here are three dividend stocks that can help provide a worry-free retirement.
Fortis: A safe stock for retirement
Fortis (TSX: FTS) is about as boring a business as you are going to find. It operates 10 distribution and transmission utilities across North America. Almost 100% of its portfolio is regulated.
Its stock is only up 12% in the past five years (even after a 12% ride-up in 2024) and 75% in the past 10 years. However, if it is income you want, it is income you will get. Fortis has grown its dividend per share for 51 consecutive years. With interest rates pulling back, demand for utilities is surging.
Fortis pays an attractive 4% dividend yield. With a 73% payout ratio, its dividend is very sustainable. With a long-term capital plan expected to deliver +6% compounded growth, Fortis believes it can grow its dividend by 4-6% per year going forward.
Pembina: A nice yield with growth in the future
Pembina Pipeline (TSX: PPL) is another dividend stock that could support some nice retirement income. Like Fortis, Pembina has had a good run in 2024. Its stock is up 24% year to date.
Pembina operates a large integrated portfolio of crucial energy infrastructure assets in Western Canada. While it has some commodity exposure, over 80% of its income comes from long-term contracts.
Its dividend-payout ratio is 73% of its fee-based distributable cash flow. This just means that it can pay an ample dividend and still generate excess cash to either invest in growth, pay down debt, or increase its dividend. The company is so stable that it was able to pay its dividend even when oil prices dipped below zero for a period in 2020.
Pembina stock yields 4.88% today. It has a sector-leading balance sheet and several exciting growth projects. It’s a nice low-risk bet for retirement.
Canadian National Railway: A great dividend-growth record
Canadian National Railway (TSX: CNR) is another blue-chip dividend stock to hold long into retirement. The company operates within a duopoly in Canada, which helps it preserve a competitive moat and strong long-term pricing power.
CNR has been in business for more than 100 years. The economy would not function without its network to transport freight, goods, and commodities.
CNR has a sector-leading balance sheet. Even though the shares are down in 2024, I expect management will be eating down its share count. This stock has a nice 2.15% dividend yield.
It has increased that dividend by a nice 13% compounded annual rate over the past decade. It should continue to grow a nice income stream for retirement in the years ahead.
