The financial goals of each retiree may differ quite significantly. Some retirees are focused on preserving whatever savings they have, and their growth goals are quite conservative, i.e., just remaining ahead of inflation. Other retirees may focus on converting their retirement savings/investments into a solid income stream.
When building an income stream as a retiree, consistency, and reliability might be just as important as the size of the income stream. You want a steady and reliable retirement income stream to maintain a predictable financial situation. Several dividend stocks can help you in building a steady retirement stream, but a few tried and tested dividend payers stand out from the rest.
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A bank stock
Bank stocks in Canada are the “go-to” option for many dividend investors. Some Canadian banks have been paying dividends to their investors for over a century, and all of the big six banks are dividend aristocrats. While any bank stock would be a valid choice, Bank of Montreal (TSX:BMO) is a strong candidate right now.
The bank offers a healthy blend of dividends and capital appreciation potential. So in the long term, not only will its dividends go up (if it maintains its aristocratic streak), but the capital invested in the bank may also go up at a decent pace, remaining ahead of inflation. The yield has been pumped a little higher than normal, thanks to the 21% discount the stock is trading at right now.
The discount may deepen since the stock is still sliding down. But if you are unsure about whether you will be able to buy it just as it hits rock bottom, consider contending with whatever discount you can get and lock in the current yield.
Like most other bank stocks, BMO’s dividends are financially sustainable, and the stability is ensured by more than the dividend history and pedigree of the bank.
A utility stock
Few stocks offer stability and reliability, similar to utility stocks. Their revenues are tied to utility bills that both residential and commercial consumers prioritize above most other expenses. They provide a service that’s crucial to sustain the modern infrastructure. If you choose a utility company like Fortis (TSX:FTS) that combines all the inherent strengths of a utility business with a compelling dividend history, it becomes an ideal pick for a steady retirement income.
Fortis is the second oldest dividend aristocrat in the country and has been raising its payouts for 49 consecutive years. One more year of dividend increases, and the company will join the ranks of the dividend kings in the US and will be the second dividend king in Canada.
The yield is also nothing to scoff at, and the stock comes with modest capital appreciation, raising the overall return potential of the stock to an even more desirable level.
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Foolish takeaway
These two large-cap stocks and dividend aristocrats can be a powerful addition to your retirement portfolio. You can keep them in your TFSA to generate a predictable and steady dividend income that increases every year, allowing you to stay ahead of inflation.
