There are different ways to plan your retirement. One way you can retire with peace of mind is investing early on in blue-chip dividend stocks you can rely on for financial security in your Tax-Free Savings Account (TFSA).
The following stocks are wise stock picks for risk-averse investors, as they align well with the concepts of capital preservation, sleeping well at night, steady wealth creation, and growing dividend income. Aim to buy them at good valuations (such as now) to protect your hard-earned savings and for satisfactory total returns for the long haul.
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RBC stock
Royal Bank of Canada (TSX:RY), or RBC, stock rarely goes on sale. Sure enough, it has been among the most resilient in the latest drawdown of North American bank stocks. For illustration, below is a graph comparing the RBC stock price change over the last 12 months to those of the equal-weight U.S. and Canadian bank exchange-trade funds.
RY data by YCharts
The bank enjoys a wide economic moat. Other than having leading positions in its banking offerings, it has also built meaningful non-bank businesses — particularly, its segments in wealth management and capital markets. Together, they strengthen its earnings stability.
Despite concerns of a recession occurring in the United States and Canada this year and higher provision for credit losses, RBC only witnessed its adjusted earnings per share falling less than 2% year over year in the first half of the fiscal year. This year, it should continue to deliver resilient results versus its North American banking peers.
At $122.92 per share at writing, analysts believe the quality bank stock is fairly priced. At this quotation, it provides a decent dividend yield of close to 4.4%. Its dividend is sustainable on a payout ratio of about 47% of adjusted earnings this year. It also has a reserve of retained earnings that can act as a buffer (if needed) to pay for close to 11 years of dividends.
Assuming no valuation expansion, The stock could deliver long-term total returns of more or less 10% per year over the next five years.
Brookfield Infrastructure Partners
Brookfield Infrastructure Partners (TSX:BIP.UN) is another smart choice for investing with peace of mind. The top utility stock has increased its cash distribution for 15 consecutive years. In the past decade, BIP increased its funds from operations (FFO) per unit at a compound annual growth rate (CAGR) of approximately 11% that drove cash-distribution-per-unit growth at a CAGR of roughly 9%.
There’s no reason for it not to continue its fabulous track record of sector-beating results, as it targets FFO-per-unit growth at a CAGR of north of 10% for the long term. This growth would come from a combination of inflation, economic growth, reinvested cash flow, and acquisitions across its diversified portfolio of infrastructure assets in utilities, transport, midstream, and data.
BIP pays out U.S. dollar-denominated cash distributions quarterly. At US$36.54 per unit at writing, it offers a respectable cash-distribution yield of close to 4.2%. At this quotation, the analyst consensus 12-month price target suggests it trades at a discount of 15%. Assuming an FFO growth rate of 10% and no valuation expansion, the stock could deliver total returns of about 14% per year over the next few years.
Investor takeaway
Despite the market volatility, an initial investment of $10,000 in each of these wealth-creation stocks 10 years ago would have transformed into an aggregate amount of about $84,080 for total returns of about 15.4% per year in the period.
RY and BIP.UN Total Return Level data by YCharts
As they trade at reasonable valuations today, investors can consider adding them to their TFSAs for long-term investment through retirement.
