Retirement is the end goal of every investor. It’s something to look forward to after decades of working, saving and investing. But the one question that needs to be answered before reaching that milestone is whether those dividends in retirement are really enough to replace a regular paycheque.
For most investors, retirement income isn’t just one source. The Canada Pension Plan (CPP) and Old Age Security (OAS) augment any workplace pension and savings. Between those and some investment income, replacing a paycheque is possible.
The key part is building out an investment portfolio that can generate reliable growing income over time. There are more than a few great options on the market to help realize that goal.
Here’s a look at three of them.
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Option #1: Big banks offer established dividend income
It’s hard to talk about dividends in retirement without mentioning Canada’s big bank stocks. And the big bank for retirement investors to consider is Bank of Nova Scotia (TSX: BNS).
Scotiabank is one of Canada’s largest banks. The bank has operations spanning Canadian banking, wealth management, and international markets. That diversified business provides several sources of earnings that help support its dividend.
The international market in particular is an area that distinguishes Scotiabank from its peers. The bank is known as Canada’s most international bank for good reason. Scotiabank has operations in more than 20 countries around the world. The international segment gives Scotiabank exposure to higher-growth markets that help to diversify its revenue stream.
It also helps the bank pay out a handsome quarterly dividend. As of the time of writing, Scotiabank pays out a yield of 3.7%. The bank has paid that dividend for well over a century without fail and has provided annual increases over the years.
The most recent increase was a bump to $1.14 earlier this year.
Option #2: REITs offer monthly income in retirement
Another investment to consider is RioCan Real Estate (TSX: REI.UN).
RioCan is one of Canada’s largest Real Estate Investment Trusts (REITs). The company operates a portfolio of over 160 properties focused on providing necessity-based retail. Many of those properties are located in shopping centres that are anchored by grocers and other retailers offering everyday essentials.
The REIT is also building out a portfolio of mixed-use residential properties. Those sites are located along transit corridors in major metro markets where demand and foot traffic are higher.
For retirees seeking dividends in retirement, RioCan offers a monthly distribution. That makes budgeting easier than the more common quarterly distribution offered by other companies.
As of the time of writing, RioCan offers a yield of 5.7%.
Option #3: Utilities offer long-term dividend growth
The third stock for investors looking to build out dividends in retirement is Fortis (TSX: FTS).
Fortis is one of the largest utility stocks in North America. The company operates a network of regulated electric and natural gas utilities across Canada, the United States, and the Caribbean.
The appeal of a utility stock is simple. They provide essential services that customers depend on regardless of economic conditions. Those services are also backed by regulated rates and long-term agreements that provide predictable revenue.
That stability has helped Fortis increase its dividend for decades.
In fact, Fortis has the second-longest dividend growth streak in Canada at 52 consecutive years of increases. The company is also targeting to extend that streak with annual bumps of 4% to 6% through 2030.
As of the time of writing, Fortis offers a quarterly payout with a yield of 3.4%.
Can dividends in retirement replace your paycheque?
The short answer to that is yes, provided there’s enough invested to generate the income needed.
Consider someone looking to replace $2,000 per month in employment income. That’s $24,000 annually.
The three stocks mentioned above provide a blended yield of 4.2%. Given a portfolio of $600,000, that would cover that paycheque from dividends alone.
And that’s before CPP, OAS and other retirement savings are accounted for.
Scotiabank, RioCan, and Fortis each offer a different approach to generating income. Together, those investments can provide income that supplements CPP, OAS, and other retirement savings.
