Aiming for a perfect retirement, where the utility and grocery bill is taken care of without worry? You have no debt and multiple sources of income. You move into a consulting role, working part-time or on a needs basis for some extra income for recreation. For this dream retirement, you need to start investing 20 years ahead in stocks.
Role of dividend investing in retirement planning
Speaking of multiple income sources, you can build dividend pools for each expense for a few years and then let your money work for you through the power of compounding. Consider building a $50,000 investment pool for utility bills, and another $50,000 for groceries and transportation.
This 6% dividend giant could be your retirement partner
In Canada, you have some good retirement partners that offer a 6% dividend yield. Among them is CT REIT (TSX:CRT.UN), a REIT that grows its distribution annually, offers a dividend reinvestment plan (DRIP), and has lower debt on its balance sheet. More than 95% of its debt is unsecured debentures, which are renewed annually. There is no construction loan, and mortgages make up a very small portion.
Moreover, CT REIT’s operating expenses are lower, considering it doesn’t spend much on marketing and broker commissions to fill occupancy. With its parent Canadian Tire occupying 92.2% of the total gross leasable area and contributing to 90.9% of annualized base minimum rent, it is fair to assume the financial strength of the retailer is better reflected in its REIT business.
CRT.UN increases dividends by 3% annually in July. However, it slowed this growth to 2.5% this year as the parent invested in the True North program to drive sales. Its same-store intensification and development projects were also slow compared to 2024.
The 6% yield of CT REIT can increase to 7.4% in 10 years and even 17.5% in 20 years.
How CT REIT can give you passive income after you retire
Let’s consider a scenario wherein you invest $12,000 in 2026 and $6,000 annually for the next nine years. Your total investment in CT REIT alone will come to $66,000. Now, invest in a DRIP (dividend reinvestment plan) from 2026 onwards.
For calculation purposes, we assumed CT REIT’s average unit price remains $16.5 for the first 10 years and $18 for the next 10 years, with dividends growing at a compounded annual growth rate (CAGR) of 2%. A $12,000 investment could buy 727 units at an average share price of $16.50. However, if you invest a lump sum today, you can buy 753 units at $15.92.
The 727 units can earn you $689 in annual dividend income. Add to it another $6,000 investment from your pocket, and you keep accumulating income-generating units. The first 10 years of accumulation could accelerate the wheel of compounding. After that, you can just let the $66,000 investment work for you through DRIP. The $4,858 dividend earned from the initial 10 years could more than double to $11,534 without a single dollar of investment from your pocket.
