CPP Won't Cut It: How to Boost Your Retirement Income

CPP Won’t Cut It: How to Boost Your Retirement Income

Investing in dividend stocks can help.

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 16, 2024 6:20 pm EDT

When it comes to retirement planning, many Canadians put a lot of focus on the Canada Pension Plan (CPP). While CPP is a helpful foundation, there’s only so much you can do to boost those payments, and the maximum monthly benefit is currently $1,364 (if you start collecting at age 65). That’s not exactly a windfall, especially when you consider rising living costs.

Instead of stressing over how much you’ll get from CPP, a better strategy for retirees might be to drip-feed savings into safe, dividend-paying investments. These investments can generate a consistent income stream, providing a financial cushion that makes retirement more comfortable.

One of the main issues with CPP is that, beyond making contributions during your working years, you don’t have much control over how much you receive. Plus, if you didn’t earn a high income throughout your career, your CPP payments will reflect that. On the other hand, by investing in dividend stocks, you can take a more proactive approach to building your retirement income. Over time, the dividends from these stocks can supplement your CPP, giving you a more reliable and potentially larger income stream.

customer uses bank ATM — Source: Getty Images

Consider TIH stock

A fantastic dividend-paying stock to consider is Toromont Industries (TSX: TIH). Founded in 1961, Toromont is a leader in industrial equipment — particularly in heavy machinery through its Caterpillar dealership. The company has grown significantly over the years by expanding its operations and delivering strong financial results. Toromont’s focus on infrastructure and construction means it benefits from stable, long-term demand. This is great news for investors looking for consistent returns.

Toromont’s leadership has helped the company navigate market cycles and consistently grow revenue. This stability has translated into solid performance for shareholders. As of its most recent quarter ending June 30, 2024, Toromont reported $4.78 billion in revenue, reflecting a healthy year-over-year growth of 15.7%. The company’s profitability is also impressive, with a return on equity of 19.65% and a net income of $518.94 million. These numbers highlight Toromont’s ability to generate cash, which in turn supports its dividend payouts.

With continued infrastructure spending in Canada and demand for heavy machinery likely to stay strong, the company is well-positioned for further growth. Plus, its financial discipline, strong cash flow, and conservative approach to debt management (with a total debt/equity ratio of 24%) mean it can continue rewarding shareholders with dividends. For retirees, this makes TIH stock a reliable choice in an investment portfolio focused on income and stability.

Toromont’s dividend

Toromont currently offers a forward annual dividend rate of $1.92 per share, with a yield of 1.45%. While this might seem modest compared to the high-yield stocks out there, Toromont’s payout ratio of 29% suggests that its dividends are sustainable and have room to grow. This is crucial for retirees who are looking for a reliable income stream that can keep pace with inflation over time.

Bottom line

By drip-feeding your savings into stocks like TIH, you can build a portfolio that generates regular income through dividends. Plus, with the power of reinvestment, you can enlarge your holdings over time, boosting the total amount of dividends you receive in retirement.