Retirees: How to Boost Your Passive Income Despite Low Interest Rates
The Motley Fool
Published Apr 19, 2021 08:05
Updated Apr 19, 2021 08:15
Retirees: How to Boost Your Passive Income Despite Low Interest Rates
Stepping into retirement can be both exciting and worrisome. Finally, you have all the time in the world to do what you want! What’s worrisome is that interest rates are low and the income that you can generate from low-risk investments is minuscule.
With life expectancy increasing, retirees could more easily outspend their savings during decades of retirement life. For reference, according to Macrotrends, the average life expectancy in Canada is about 82 years.
Retirees are making less income than they’re when they’re working full time. Therefore, they may not be able to earn enough income to live on simply by putting their savings in GICs for the sake of avoiding risk.
The best five-year GIC rate is going for 2.1%, which roughly matches the long-term targeted rate of inflation of 2%. Therefore, retirees can maintain their purchasing power via this GIC rate.
Ideally, retirees would want nice income on their investments, which are also growing faster than inflation. Buying defensive dividend stocks can kill two birds with one stone. You can boost your passive income and grow your wealth at the same time!
Hold Fortis stock for safe, passive income Fortis (TSX:FTS)(NYSE:FTS) stock is a trustworthy dividend stock for retirees. The regulated electric and gas utility generates highly stable earnings in good and bad economic conditions.
No wonder Fortis stock is a reputable Canadian Dividend Aristocrat that has increased its dividend for 47 consecutive years. This is one of the longest dividend-growth streaks on the TSX!
Because of Fortis’s defensive and high-quality nature, the dividend stock commands a premium valuation. Its 10-year average valuation is about 19.4. Currently, the stock is fairly valued and offers a yield of close to 3.7%, which provides roughly 75% more income than the 2.1% GIC rate.
For a bargain, retirees can aim to buy it for a +4% yield. This implies a maximum buy target of $50.50 per share from the current annualized payout of $2.02 per share. Notably, Fortis pays a quarterly dividend.
Importantly, Fortis stock aims to increase its dividend by about 6% through 2026, which is roughly three times the long-term targeted inflation rate of 2%.
Buy Enbridge stock for more passive income Some retirees need to live off of more passive income than a yield of about 4%. If so, you can consider buying high-yield stocks like Enbridge (TSX:ENB)(NYSE:ENB). Its yield of about 7.2% is more than three times the 2.1% GIC rate!
Enbridge is the largest North American energy infrastructure stock and a Canadian Dividend Aristocrat with 25 consecutive years of dividend increases.
Its dividend is well protected by its distributable cash flow on a payout ratio of about 65%. Investing $10,000 in Enbridge will generate a passive income of about $720 per year initially. Over the next couple of years, the dividend stock can probably increase its dividend by approximately 3% per year.
Get The App
The Foolish takeaway Retirees who seek greater income can consider increasing their stock exposure. You need not take excessive risks. Instead, consider defensive dividend stocks that are income focused, including Fortis and Enbridge. Always focus on dividend safety by checking on the companies’ earnings or cash flow stability and the sustainability of their payout ratios.
The post Retirees: How to Boost Your Passive Income Despite Low Interest Rates appeared first on The Motley Fool Canada.
Fool contributor Kay Ng owns shares of Fortis. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends FORTIS INC.
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2021
This Article Was First Published on The Motley Fool
Written By: The Motley Fool
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.