CPP pensioners looking to give themselves a bit of a passive income raise may wish to consider picking up some hard-hit dividend stocks while they’re still cheap. Indeed, chasing yield without a game plan can lead to fast losses.
That’s why it’s vital to ensure the health and security of any dividend payment by looking at the state of the balance sheet, free cash flows, and the longer-term growth narrative. Of course, CPP pensioners shouldn’t seek to take too many risks, especially in a market that already believes that a soft landing (or none at all) has already happened.
With the Bank of Canada winding down on rates, the hard landing for the economy we all feared is now the unlikeliest of scenarios. Does that mean one has a free pass to take on more risks?
Not. After all, CPP pensioners should consider safety over almost everything else. At the same time, these investors shouldn’t shy away from the opportunities that come their way. If there’s a relatively safe higher-yielder that’s trading what you consider to be a bargain-basement multiple, it makes sense to deploy some cash to bolster that passive income stream by a little bit.
Indeed, the 4% rule, which suggests you should average a 4% yield from stocks in your income fund, can keep you away from trouble and dividend cuts. That said, some of the best passive income plays are yielding over 4% today. In this piece, we’ll go over two that older investors may wish to pick up if they want to supplement their CPP pension in retirement.
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Bank of Montreal
The Canadian banks look like terrific deals these days after getting hit with a rough patch during and after the pandemic lockdowns.
Bank of Montreal (TSX: BMO) stands out as one of the more bountiful Canadian bank stocks to buy right now, with its dividend yield hovering just north of the 5% mark. Still down around 19% from its 2022 peak, BMO stock seems to be one of the Big Six banking members that seems to have gotten left behind.
This could change over the next 18 months, though, as BMO looks to make positive changes to get back on the right track. Just over a week ago, BMO announced Kristin Milchanowski will be its chief AI officer.
Indeed, this new executive role suggests that BMO is taking AI technology very seriously. As BMO continues leveraging next-generation AI tech, I think investors would be wise to stick with the big bank as it looks to move past its rough patch.
Telus
If a 5% yield isn’t enough to satiate your passive income needs, perhaps Telus (TSX: T) is the better pick-up. At $22 and change per share, shares of T yield just over 7%.
Indeed, it’s a somewhat stretched payout but one that’s still relatively well covered, especially with the tailwind of lower rates coming in. Of course, the Canadian telecom scene has been under severe pressure, and with no easy solutions, passive income investors will need to continue rolling with the punches.
The good news is that Telus seems to be on the right track as it prepares for the arrival of AI-enabled smartphones, which could spark subscriber growth. In the meantime, Telus is primed to keep enhancing its 5G network, which should help it push ahead of rivals.
