Retirees: 3 Income Stocks Every Canadian Needs to Buy Now

Retirees: these are the only three dividend stocks you need to get started in creating passive income during retirement.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published October 8, 2024 10:30 am EDT

Passive income from returns and dividends can be one of the best ways to support retirement. It’s like having your money work for you while you sit back and enjoy life. Instead of worrying about daily market ups and downs, you can count on regular dividend payouts from solid companies or funds, thus helping cover your everyday expenses without having to dip into your savings. Plus, as your investments grow over time, those dividends can grow, too, thus giving you a reliable, and sometimes even increasing, source of income to help make retirement more enjoyable and stress-free.

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Royal Bank

Royal Bank of Canada (TSX: RY) is a great option for retirees looking for passive income, thanks to its reliable dividends and strong financial performance. With a forward annual dividend yield of 3.45%, RY consistently rewards shareholders, thus making it a stable source of income. In its most recent earnings report, RY saw a 16.2% year-over-year growth in quarterly earnings, supported by a 13% jump in revenue. This solid growth highlights RY’s ability to thrive in varying market conditions, thereby making it a dependable choice for those looking to fund their retirement with dividends.

Looking ahead, Royal Bank is well-positioned for future growth, with a trailing price-to-earnings (P/E) ratio of 14.57 and a forward P/E ratio of 12.77. This suggests the stock is reasonably valued compared to its earnings potential. Plus, with a 52-week change of 43.20% in stock price, RY has delivered strong returns to investors. Its solid return on equity of 13.68% reflects management’s efficiency. While the 48.98% payout ratio indicates that the bank has plenty of room to keep those dividend payments flowing without straining its resources. For retirees seeking stability and growing income, RY is a top contender on the TSX.

Capital Power

Capital Power (TSX: CPX) is a great choice for retirees looking to build passive income, especially given its solid dividend yield. With a forward annual dividend yield of 5.19%, CPX provides a generous and stable income stream for investors. Despite a slight dip in quarterly earnings growth, down 13.8% year over year, the company remains profitable with a strong return on equity of 19.49%. This demonstrates management’s ability to generate solid returns on shareholders’ investments. The company is well-positioned in the renewable energy space. This supports long-term stability and future growth potential — key factors for those in retirement seeking dependable dividends.

Looking ahead, CPX’s valuation is quite attractive, with a trailing P/E ratio of 9.95, indicating it’s trading at a reasonable price compared to its earnings. The company’s 52-week change of 33.86% reflects strong stock performance, showing investor confidence. Additionally, with a payout ratio of 48.71%, Capital Power has ample room to continue paying dividends while reinvesting in future growth. For retirees, CPX offers a great combination of income today and potential capital appreciation down the road.

XDV ETF

iShares Canadian Select Dividend Index ETF (TSX: XDV) is a fantastic option for retirees seeking passive income. It offers a solid 4.68% dividend yield, making it an excellent income stream. With over 56% of its holdings in financial services, including major Canadian banks like Royal Bank of Canada, XDV invests in stable, high-dividend-paying companies. Plus, its year-to-date total return of 17.19% shows strong performance, thus making it a dependable choice for retirees looking to balance growth and income in their portfolios.

From a valuation perspective, XDV is attractively priced, with a P/E ratio of 11.48, which suggests it’s not overly expensive considering the income it generates. Its diverse sector exposure, including utilities, communication services, and energy, helps spread risk while focusing on companies known for paying reliable dividends. With a 52-week range between $24.30 and $31.33, XDV has steadily gained value, thus making it a secure, low-cost option for those in retirement looking to enjoy a steady stream of income without the volatility of individual stocks.