The definition of a retirement stock varies from one investor to another and for different phases of an individual’s retirement journey. When you are decades away from your retirement years, the focus will likely be on the growth stocks. But as you get closer, your focus might be balancing growth with income generation. A comprehensive portfolio will incorporate both types of retirement stocks.
An energy stock
Enbridge (TSX:ENB) is one of the most generous aristocrats and energy stocks currently trading on the TSX. It’s also one of the largest energy companies in North America, which carries about a fifth of the natural gas consumed in the U.S. and 30% of the crude oil produced in the region. The company is also increasing its presence in the renewable sector.
Its position as a Dividend Aristocrat that offers a compelling combination of yield and dividend sustainability makes it an ideal candidate as a retirement stock. It’s currently offering a juicy 7.1% yield.
If you were to divert about $30,000 of capital from a fully stocked Tax-Free Savings Account (TFSA) to this stock, you could generate a monthly income of about $177. At its current price, you can buy at least three Enbridge shares every month, or about 36 shares a year.
This reinvestment can help you grow your stake considerably in a couple of decades. When you finally start cashing in your dividends from Enbridge, the amount might be significantly more substantial.
A convenience store chain
In a bit over half a century, Alimentation Couche-Tard (TSX:ATD) has grown from a single local store to over 14,000 stores in 24 countries. While its primary focus is convenience stores, it also has two sizable chains of fuel stations, one of which is concentrated in Denmark. This diverse business model and an impressive international presence make Alimentation a relatively safe long-term holding.
It also pays a dividend and has established itself as an Aristocrat by raising its payouts for 13 consecutive years, but it’s not a good retirement stock pick because of its dividend. The yield is usually too low to make a meaningful impact.
But the stock’s capital-appreciation potential is amazing. It has risen by about 555% in the last decade. Assuming it can maintain five-fold growth (per decade) in the next two decades, it may grow your $25,000 TFSA capital to a quarter-of-a-million dollars in the next two decades.
A tech stock
Tech stocks in Canada are, on average, far more energetic than stocks from some other sectors. This results in powerful growth spurts and, when the market or global tech sector is weak, massive dips. But there are tech stocks that offer a powerful combination of growth and consistency, and Constellation Software (TSX:CSU) is easily the top example.
Constellation is an acquisition-oriented software company that currently owns six tech companies catering to dozens of vertical market niches in about a hundred countries. This geographic and domain diversity makes Constellation more stable compared to many other tech stocks, and its long-term performance endorses this perspective.
As for the performance, the stock has risen by about 1,800% in the last decade. Even if it performs half as well going forward — i.e., nine-fold growth per decade — you could turn $25,000 from your TFSA into well over $400,000.
Foolish takeaway
The above projections show the potential the three stocks can offer in the next two decades if all you invest in them is the savings you might have accumulated in your TFSA by now — $80,000 from $88,000 of a fully stocked TFSA.
That’s about $650,000 at a conservative estimate and the income-producing stake in Enbridge. You can supercharge your TFSA potential by choosing similarly compelling retirement stocks in the future.
