Many Canadian investors use dividends as a way to supplement their income in retirement. Retirees need to maximize their dividend yield while minimizing risk. Preservation of both capital and income should be top of mind.
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Retirees should look for durable, sustainable, and growing dividends
Retirees are wise to look for stocks with modest, sustainable (and hopefully growing) dividends. As the business grows more profitable, it is likely to increase its dividend rate. You may not collect the highest yield in the market. Nonetheless, you are more likely to preserve (and even grow) your capital while collecting a growing income stream over time.
If you are looking for some ideas, here are three Canadian dividend stocks that are ideal for retirees.
Granite REIT: The ultimate defensive monthly income play
Granite Real Estate Investment Trust (TSX:GRT.UN) is one of the best quality real estate investment trusts (REITs) a retiree can own. It owns 134 industrial properties across Canada, the United States, and Europe. These are high-end logistics, e-commerce, manufacturing, and warehousing properties.
Granite operates with over 97% occupancy. It has a wide mix of credit-worthy tenants on long-term leases (average over 5.5 years). The REIT has done an excellent job growing its cash flow per unit by a mid- to high single-digit annual rate.
The REIT has one of the best balance sheets in its universe with a modest 35% net leverage ratio. Given Granite’s persistently strong balance sheet, it has increased its distribution for 15 consecutive years. Its payout ratio is very conservative at only 67%. In fact, even after paying its distribution, it still generates about $100 million of excess cash per year.
This suggests it is likely to have years of distribution growth ahead. Today, you can buy this stock with a 4.6% yield. It happens to pay its distribution monthly, so it really is a great income supplement.
Canadian Natural Resources: An energy stock to rely on
Canadian Natural Resources (TSX:CNQ) is another solid bet retirees can trust for steady, growing dividends. Even though oil prices are down 15% this year, Canadian Natural Resources stock is up 8.5%!
The company has quietly consolidated substantial high-quality production assets over the past four years. It delivered record production of over 1.6 million barrels of oil equivalent per day in the third quarter! Despite energy prices being weak, it still generated a whopping $3.9 billion of excess cash.
The company operates like a machine. Very low operational costs enable it to withstand good and bad energy markets. Even though it operates in a cyclical industry, it has found a way to grow its dividend by 21% compounded annual growth rate for 25 consecutive years.
Canadian Natural stock yields 5%. It’s a solid blue-chip stock that retirees can rely on for income.
Fortis: A retiree’s dream
Fortis (TSX:FTS) is probably the most defensive and least volatile of these stocks. It doesn’t deliver exciting capital returns (around 5-6% per year). However, if you want safety and surety, it’s a perfect stock for retirees.
Fortis has a very low beta (0.4). This simply means that it is much less volatile than the broader market. Its returns are not heavily correlated to the market. While this caps the upside to an extent, it also protects your downside when the market is in a downdraft.
The reason for this is Fortis’s defensive business. Nearly 100% of its utility operations are regulated with a focus on gas and electricity transmission/distribution. Its earnings are predictable, and its growth plans are prudent.
Fortis has raised its dividend for 52 consecutive years. Given its conservative growth plan and great record of execution, this is likely to continue for many years ahead. This dividend stock for retirees yields 3.5% today.
