Retirees tend to be risk-averse investors, as they no longer have a regular income stream to offset potential losses from their investments. Therefore, they should consider investing in stocks with solid underlying businesses, healthy cash flows, and a consistent dividend payout history. Against this backdrop, let’s look at my three top picks for retirees.
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Fortis
Fortis (TSX: FTS) would be my first pick due to its regulated, low-risk business and consistent dividend increase for 51 years. The electric and natural gas utility company serves 3.5 million customers across the United States, Canada, and the Caribbean through its 10 regulated utilities. Its expanding rate base, favourable customer rate revisions, and improving operating efficiencies have supported its financial growth, driving its stock price. Over the last 20 years, the company has delivered an average shareholders’ return of 10.2%.
Moreover, the demand for electricity and natural gas continues to rise amid rapid urbanization, the electrification of transportation, rising income levels, and the development of new data centres due to increased artificial intelligence usage. Meanwhile, the St. John’s-based utility company continues to expand its rate base through its five-year capital investment plan of $26 billion. These investments could grow its rate base at an annualized rate of 6.5% to $53 billion by the end of 2029. Amid these growth initiatives, Fortis, which currently offers a forward dividend yield of 3.7%, anticipates increasing its dividends by 4–6% annually through 2029, making it an attractive buy.
Enbridge
Second on my list is Enbridge (TSX: ENB), which has paid dividends for the last 70 years and has also raised its dividend at an annualized rate of 9% since 1995. It transports oil and natural gas across North America, through a tolling framework and long-term take-or-pay contracts. It also operates a low-risk natural gas utility business and renewable energy facilities, while selling the power from these facilities through long-term power purchase agreements (PPAs). Therefore, the company generates reliable cash flows, enabling it to consistently raise its dividends . Meanwhile, ENB stock’s forward dividend yield currently stands at 6.1%.
Further, the Calgary-based energy company continues to expand its rate base by making annual capital investments of $9 billion to $10 billion. It has also identified $50 billion of growth opportunities across its business segments. Its financial position also looks healthy, with a liquidity of $13.4 billion. The company is targeting a sustainable payout ratio of 60–70%. Considering all these factors, I expect Enbridge to continue paying dividends at a healthier rate, thereby making it an attractive buy for retirees.
Bank of Nova Scotia
I have chosen the Bank of Nova Scotia (TSX: BNS), which has been paying dividends since 1833, as my final pick. Due to its diversified revenue sources, offering multiple financial services in over 20 countries, the company enjoys healthy and stable cash flows, enabling it to pay dividends at a healthier rate. Its current quarterly payout of $1.10/share translates into a forward dividend yield of 5.7%.
Moreover, BNS is focusing on expanding its business in North America. It has acquired a 14.9% stake in KeyCorp for US$2.8 billion, allowing it to deploy its capital cost-effectively in its priority market. Further, it is scaling back its Latin American operation to improve operating efficiency and drive profitability. The management also announced in May that it would repurchase 20 million shares over the next 12 months, representing 1.6% of its total share count as of May 23. Considering its expansion and cost-cutting initiatives, I believe BNS stock can continue to reward its shareholders with high dividend yields.
