Dividend Income in Retirement: What Could Go Wrong?

Dividend investing is a proven way to create income in retirement but you must know the risks you need to protect against.

Key Points
  • Dividend investing can provide retirees with passive income, but payments aren’t guaranteed and high yields may signal financial trouble.
  • Diversifying across sectors and prioritizing financially strong companies can help reduce risk and protect retirement income.
  • Emera offers a 4.53% dividend yield, a 20-year dividend growth streak, and regulated utility cash flows that may support sustainable income.

Dividend investing is a proven, effective strategy for generating passive income. It can provide retirees with a paycheque to fund everyday expenses. If you’ve built a large enough portfolio, you can potentially live off the dividend income while keeping your principal intact. However, this approach isn’t bulletproof. There are risks you need to protect against.

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No guarantee on payments

Dividend payments, unlike bonds, are never guaranteed. It is at the discretion of its Board of Directors whether to pay, reduce, cut or suspend them. Severe economic downturns or industry disruptions usually prompt companies to change their dividend policies. Investors have less control over when to realize income.

Yield traps

Beware of yield traps when picking dividend stocks for retirement income. Don’t be tempted to chase high yields. An exceptionally generous payout is often a red flag, indicating a distressed business. Sometimes when a company’s share price tanks because of weakening fundamentals, its dividend yield artificially spikes. The cash flow dries up next.

Concentration and sector risk

Broad diversification is the key to mitigating market risks. Build an investment portfolio around high-quality dividend payers from different sectors. This prevents retirees from relying heavily on a single company, business or industry.

Choose companies with low-risk profiles that reliably provide income. Besides capital protection, you can keep up with long-term inflation and preserve purchasing power.

Strong buy candidate: Emera

Emera Incorporated (TSX: EMA) stands out as a strong buy candidate for risk-averse retirees seeking sustainable income. This $20.9 billion company operates regulated electric and gas utilities across North America, providing highly predictable, rate-regulated cash flows. regardless of the economic environment. Its defensive business model helps EMA remain resilient in any economic environment.

On October 2, 2026, Emera announced a 1% increase (to $2.96 annualized dividend) to the company’s quarterly dividend, extending its divided growth streak to 20 years. According to Emera President and CEO Scott Balfour, the latest hike underscores the strength of the business and management’s commitment to delivering stable, sustainable returns to shareholders.

“The continued growth in our dividend is supported by our forecasted 7% to 8% rate base growth and 5% to 7% average adjusted earnings per share growth target through 2030,” Balfour said. He added that enhancing shareholder value through disciplined financial management and a robust growth strategy remains Emera’s top priority.

Another compelling reason to include Emera in a retirement portfolio today is the coming merger with Canadian Utilities in late 2027 to create a powerhouse utility company. The new entity, worth approximately $72 billion, will have the scale to capitalize on opportunities from the ever-increasing power demand.

More importantly, Emera will be well positioned to play a key role in the rapid growth of artificial intelligence and the AI infrastructure buildout. If you invest today, EMA trades at $65.25 per share and pays a 4.5% dividend. A $20,000 investment will generate about $226.50 every quarter.

The bottom line

Retirees can turn to dividend investing to create income in a practical, less cumbersome way. While it is not entirely risk-free, you can diversify, avoid yield traps, and prioritize dividend safety to ensure reliable dividend income in retirement.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Emera. The Motley Fool has a disclosure policy.

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