Prioritizing Goals for Your Retirement Portfolio

Ultimately, you want stable passive-income generation in retirement. Before then, will you focus on income or growth?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Planning ahead is always best when it comes to building your retirement portfolio. You don’t have to time the market if you plan to invest in solid businesses for a long time. Imagine buying a sleep-well-at-night dividend stock like Fortis (TSX:FTS)(NYSE:FTS) 30 years ago. You could pretty much ignore its valuation at the time and expect stable dividend growth and reasonable growth of your investment from price appreciation.

Even if you bought Fortis stock 20 years ago, you would have beaten the U.S. stock market returns of about 7.5% in the period by getting annualized returns of about 10.5%. You would have gotten about 250% greater dividend income and 44% greater price appreciation in the two decades. Your yield on cost of about 4.1% would have grown to 18.5% (assuming you only made that single investment 20 years ago).

Adding to the position over time would have lowered your yield on cost. However, your dividend income and absolute gains would increase. Therefore, while you don’t have to time the market, timing the market whenever you can and buying solid dividend stocks at good or cheap valuations will help boost your dividend yield and total returns.

Prioritizing income for your retirement portfolio

If you’re starting your retirement investment portfolio early, or you’re close to or at retirement, you probably want to prioritize income. In the former case, essentially, you’re taking lower risk by earning stable and substantial cash flows from your investments. In the latter case, you will be using income generated from your retirement portfolio soon if not now.

In most markets, you can find safe dividend stocks providing yields of 3-6%. The more you lean towards higher yields, the less growth you can expect. The lower growth is not necessarily bad. You can view it as you’re being compensated for the slower growth with higher current income.

For example, STORE Capital is a decent holding for our RRSPs or RRIFs. STORE Capital is a net-lease REIT that generates stable and growing cash flows. STOR stock provides a juicy yield of about 5%, and it’s expected to grow its funds from operations by about 5% on a per-share basis.

Assuming a fairly valued stock, it can deliver long-term annualized returns of about 10%. At $30.62 per share at writing, though, the analyst consensus 12-month price target on Yahoo Finance suggests it’s undervalued by 12%, which is even better!

Focusing on growth

Alternatively, folks starting their retirement investment portfolios early might choose to take on greater risks by focusing on growth over income to attempt to increase their wealth more substantially. If so, low-yield stocks with greater growth potential would be your focus.

For instance, Magna International is a cyclical stock that yields 2.8%. Analysts estimate that the dividend-growth stock is undervalued by about 28%. So, the auto parts maker can deliver estimated annualized returns of about 15% over the next five years. It’s a Canadian Dividend Aristocrat that has the ability to continue increasing its dividend. For reference, its five-year dividend-growth rate is about 9%.

The Foolish investor takeaway

The earlier you plan and build your retirement investment portfolio, the less risk you can take and still get satisfactory returns. Depending on your risk tolerance and the years you have until retirement, you can focus on current income to take lower risk or focus on higher growth that’s perceived to be higher risk.

Should you invest $1,000 in Fortis right now?

Before you buy stock in Fortis, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Fortis wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool recommends FORTIS INC and Magna Int’l. Fool contributor Kay Ng owns shares of Magna Int’l. and STORE Capital.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Investing

Canada national flag waving in wind on clear day
Dividend Stocks

The Best Canadian Stocks to Buy Right Away With $30,000

If you have $30,000 you're willing to invest, these are some of the first Canadian stocks to consider on your…

Read more »

rail train
Dividend Stocks

What to Know About Canadian Pacific Railway Stock for 2025

CP stock has now gone through a major merger, so what do investors have to look forward to?

Read more »

ways to boost income
Dividend Stocks

Top Canadian Value Stocks I’d Buy for Dividend Growth and Appreciation

If you are looking for income and capital appreciation, here are three Canadian value stocks for a great total return…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Canadian Stock to Buy With $2,000 Right Now

The company’s powerful combination of growth, income, and value, positions it well to deliver solid returns, making it a smart…

Read more »

Transparent umbrella under heavy rain against water drops splash background. Rainy weather concept.
Dividend Stocks

This 10.6 Percent Dividend Stock Pays Cash Every Single Month

Are you looking to invest for a rainy day? This 10.6% dividend stock pays cash every month, irrespective of the…

Read more »

money goes up and down in balance
Retirement

Where I’d Invest $10,000 in Canadian Value Stocks for Long-term Growth

Suncor Energy Inc (TSX:SU) is a quality Canadian value stock.

Read more »

A worker gives a business presentation.
Dividend Stocks

Market Dip: Opportunity or Risk This April?

This market dip might have investors worried, but should they be excited instead?

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Why I’d Add This Top TSX Dividend Stock to My TFSA During the Current Dip

The market is full of volatility right now. Fortunately, this top TSX dividend trades at a discount and pays a…

Read more »