Canadian investors are looking for ways to build self-directed retirement portfolios in their Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP).
The recent drop in the share prices of some top Canadian dividend stocks and the jump in rates offered on fixed-income investments are giving new investors a chance to pick up attractive yields on their savings.
Source: Getty Images
Dividend stocks
A popular strategy to build wealth involves owning top TSX dividend stocks and using the distributions to acquire new shares. This sets off a compounding process that can eventually turn modest initial investments into significant savings over time, especially when dividends increase at a steady pace and the share price gradually moves higher.
The best stocks to consider in this scenario are ones that have long track records of delivering steady dividend growth.
Fortis (TSX: FTS), for example, has increased its dividend annually for 52 consecutive years. The stock is down from $83 earlier this year to the current price near $76, providing a better entry point and a 3.4% yield.
Fortis owns and operates power generation facilities, electricity grids and natural gas and electric utilities in Canada, the United States, and the Caribbean. These businesses are recession-resistant, given that they provide essential services.
Fortis expands through acquisitions and development projects. The current $28.8 billion capital program is expected to raise the rate base by a compound annual rate of about 7% over five years. As the new assets go into service and start generating profits the company plans to increase the dividend by 4% to 6% annually through at least 2030.
Enbridge (TSX: ENB) is another top Canadian dividend stock to consider. The company is a giant in the North American energy infrastructure industry and is benefitting from the rise in demand for oil and natural gas as countries buy more Canadian and American energy products in order to secure reliable energy supplies.
Enbridge has a $41 billion capital program on the go to drive growth in revenue and cash flow over the medium term. This should enable Enbridge to extend its streak of dividend increases. Enbridge raised the dividend in each of the past 31 years.
Enbridge’s share price is down to $66 at the time of writing, compared to $80 a few months ago. The dip has pushed the dividend yield to an attractive 5.8%.
On the risk side, stock prices can be volatile, so investors need to be comfortable riding out some turbulence as part of the price for getting access to dividend growth and potential long-term capital gains.
GICS
Investors can now get non-cashable GIC rates of 3.7% to 4.4% from Canada Deposit Insurance Corporation (CDIC) members, depending on the issuer and the term of the certificate. This is a decent return on a guaranteed investment. The invested funds are 100% safe, as long as they are within the $100,000 limit and the GIC is from a CDIC member.
Owning GICs helps offset the capital risk that comes with owning stocks.
The bottom line
In the current market conditions investors can put together a diversified portfolio of top TSX dividend stocks and GICs to get an attractive return for a retirement portfolio while balancing risk with capital safety.
