Retirees should look for long-term, sustainable and growing dividends
Retirees would be wise to look for stocks with modest, sustainable (and hopefully growing) dividends. As the company becomes more profitable, it will likely increase its dividend rate as well. You may not get the highest returns on the market. Nevertheless, you’re more likely to preserve (and even grow) your capital while receiving a growing income stream over time.
If you’re looking for ideas, here are three Canadian dividend stocks that are ideal for retirees.
Granite REIT: The Ultimate Defensive Play for Monthly Income
Granite Real Estate Investment Trust (TSX:GRT.UN) is one of the best real estate investment trusts (REITs) a retiree can own. It owns 134 industrial properties in Canada, the United States and Europe. These are high-end logistics, e-commerce, manufacturing and warehousing properties.
Granite operates with an occupancy rate of more than 97%. It has a broad mix of creditworthy tenants with long-term leases (an average of more than 5.5 years). The REIT has done an excellent job growing cash flow per unit at a mid-to-high single digit annual rate.
The REIT has one of the best balance sheets in its universe with a modest net debt ratio of 35%. Given Granite’s continued strong balance sheet, Granite has increased its distribution for fifteen years in a row. The payout ratio is very conservative at only 67%. Even after paying the distribution, the company still generates about $100 million in additional cash per year.
This suggests that there are likely years of distribution growth ahead. Today you can buy this stock with a yield of 4.6%. It pays the distribution monthly, so it really is a great income supplement.
Canadian Natural Resources: An Energy Supply You Can Trust
Canadian natural resources (TSX:CNQ) is another solid choice that retirees can rely on for stable, growing dividends. Although oil prices are down 15% this year, Canadian Natural Resources stocks are up 8.5%!
The company has quietly consolidated significant high-quality manufacturing assets over the past four years. It delivered a record production of more than 1.6 million barrels of oil equivalent per day in the third quarter! Even though energy prices were weak, it still generated a whopping $3.9 billion in excess cash.
The company works like a machine. Thanks to very low operating costs, the company can withstand good and bad energy markets. Even though the company operates in a cyclical industry, it has found a way to grow its dividend at an annualized rate of 21% for 25 consecutive years.
Canadian Natural shares yield 5%. It’s a solid blue chip stock that retirees can rely on for income.
Fortis: every retiree’s dream
Fortis (TSX:FTS) is probably the most defensive and least volatile of these stocks. It does not deliver exciting capital returns (about 5-6% per year). However, if you want safety and security, this is a perfect stock for retirees.
Fortis has a very low beta (0.4). This simply means that it is much less volatile than the broader market. The returns are not highly correlated with the market. While this covers the upside to some extent, it also protects your downside when the market is in a downturn.
The reason for this is Fortis’ defensive activities. Nearly 100% of utility activities are regulated, with an emphasis on the transportation/distribution of gas and electricity. Profits are predictable and growth plans are cautious.
Fortis has increased its dividend for 52 years in a row. Given the conservative growth plan and the good track record in implementation, this is likely to remain the case for many years to come. This dividend share for retirees yields 3.5% today.
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