Canadian retirees should look to play things a bit safer as they enter a period where they might not be as well-equipped to recover from those inevitable stock market drawdowns, especially the vicious ones. Indeed, a quick and easy way to check to see if you still have what it takes to be allocated in equities versus safer investments such as bonds, GICs, cash, or cash equivalents is to ask yourself what you’d do if the stock market were to plunge 5% tomorrow.
What if it’s down over 15% in a week or worse? Would you run to the hills in a panic or lose sleep over the potential for a pullback to get even worse? Or would you treat the pullback as nothing more than an opportunity to buy more of your favourite stocks at lower prices?
Indeed, it’s hard to know how you’ll really feel and react when the moment of panic-selling comes, but, for the most part, I think that investors, including those at or nearing retirement, should really take a moment to understand their own goals and just how much risk they are willing to take on.
Also, taking a bigger bite out of the defensive dividend stocks or lower-beta names might entail better sleep than a front-row seat to the hottest AI chip stock of the moment. At the end of the day, retirees shouldn’t shy away from stocks at a time like this, when inflation is running hot and interest rates on risk-free assets aren’t all too great.
Of course, things could change if the Bank of Canada were to hike a few times going into 2027. But I wouldn’t wait around for higher risk-free yields, especially considering the opportunity costs that are higher with every step higher than inflation takes. Let’s take a look at two high-yield dividend stocks that I think might offer a safer, more stable ride than the market indices, most notably the S&P 500, which some are starting to view as expensive and even a bit underdiversified, given how influential mega-cap tech has become.
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Fortis
Fortis (TSX:FTS) might be the ultimate bond proxy stock for retirees looking to do better than GICs or bonds, and are willing to accept the added risks, which, I believe, are worth bearing considering the ample rewards of doing so. With shares of FTS trading at just over $80 per share, the name yields 3.1%.
That’s modest when it comes to Fortis, which tends to boast a yield closer to the 4% mark. That said, the dividend growth is the main attraction to the shares, as is the 0.43 beta, which entails less choppiness on those really rough days for the broader TSX Index. The 23.8 times trailing price-to-earnings (P/E) ratio strikes me as a fair price to pay for a dominant defensive business with highly predictable cash flows.
TC Energy
Shares of TC Energy (TSX:TRP) are also pricier than historical averages, but the yield, currently at 3.71%, is still fantastic for this climate. And, what’s more, the dividend is poised to grow steadily every year as the pipeline firm looks to do its part to help feed the massive demand for energy across the continent.
At 28.1 times trailing P/E, though, the name is going for quite a premium. While I could be wrong, I think that the premium is worth paying, given the swelling free cash flow and earnings visibility.
