Before we head to three stocks that retirees should absolutely love, here are three things retirees would absolutely love to get from stocks: dividend income, capital preservation, and growth.
Retirees love getting growing dividends
Fortis (TSX:FTS) stock is the go-to blue-chip Canadian utility stock for retirees. And there are plenty of reasons for that. The consistency in its dividend growth has been absolutely amazing; Fortis has increased its dividend for about half a century! Only one other Canadian dividend stock has achieved this feat.
Additionally, Fortis consists of a diversified portfolio of quality, regulated utilities that support stable earnings and steady growth through the economic cycle. It won’t deliver the highest returns but it will provide capital preservation. However, retirees should be extra careful to buy shares only when the stock trades at a discount — seeing as it’s not a high-growth stock that could grow into its valuation.
At about $59 per share, Fortis offers a dividend yield of around 4%, which is not bad. However, it is about fully valued today and, therefore, offers no margin of safety. To better protect your capital, consider buying shares on dips to $55 or less over the next 12 months.
This top utility stock should be embraced by retirees
Here’s a top utility stock that’s higher risk but offers more income and higher growth potential — Brookfield Infrastructure Partners (TSX:BIP.UN). Its risk is higher than Fortis stock’s, which can be easily illustrated through the long-term stock price chart below.
FTS and BIP.UN 10-year stock price data by YCharts
Although Brookfield Infrastructure could experience larger draw-downs during stock market corrections, such as, for example, in the pandemic in 2020 and the interest rate hike cycle in 2022, it has climbed higher in the long run. Combined with its bigger cash distribution and higher growth, it translates to long-term outperformance in the utility stock.
FTS and BIP.UN 10-year total return data by YCharts
Brookfield Infrastructure owns and operates a globally diversified portfolio of long-life infrastructure assets that generate quality and growing cash flows. Furthermore, management also employs an ongoing capital-recycling strategy that de-risks and improves long-term returns. Ultimately, it targets a 12-15% after-tax levered rate of return on its investments. Its track record is excellent, driving 10-year annualized returns of 14.5%!
Today, TSX:BIP.UN units offer a cash distribution yield of close to 5.1%. Retirees need to be able to hold through market volatility, though. Having the courage to buy in market corrections should also boost long-term wealth creation.
RBC stock is a good core holding for retirees
To ensure capital preservation, retirees must buy stocks in underlying businesses that make durable profits. As well, they must be comfortable holding through thick and thin after doing their due diligence. As a big Canadian bank that enjoys leading positions in key financial products and services in Canada, Royal Bank of Canada (TSX:RY) or RBC doesn’t need much introduction.
It makes about 59% of its revenues in Canada and 25% in the United States. Its revenue generation is diversified across its core business segments: personal and commercial banking (39% of fiscal 2023 revenue), wealth management (31%), capital markets (20%), and insurance (10%).
RBC stock pays out solid, growing dividends. For your reference, its 10-year dividend-growth rate is 7.8%. Unfortunately, like Fortis stock, the stock currently doesn’t offer much margin of safety. At $153 and change per share, the top Canadian bank stock yields 3.7%. It would be a better buy on dips of at least 7% or when it yields 4% or higher.
