You want to have an income stream that grows in retirement and not have a fixed income stream. This is so you can stay ahead of the time erosion of your money. Mainly speaking about inflation. It makes no sense to be collecting the same monthly amount of money when everything you need keeps rising in price. You want to devise a plan so your income rises with inflation. This is the strategy I pursue in retirement.
Look at the Track Record
Before I put any new money to work it's important to look at the dividend payout track record of the company I'm considering of buying. Bank of Montreal has paid a dividend every year for the last hundred years. Do they increase the dividend every year? Not always but they have a consistent history of paying investors more as time goes by.
I look for at least a 10 year record of increasing that dividend. In retirement this is your safety valve that the money they say they are paying will not only be there but will grow over time allowing me to keep up with inflation.
This is mainly why I always start with looking at banks when considering making a purchase to supplement my pension income.
Dividends Always Matter
Plain and simple I don't buy stocks that don't pay me to own them. NEVER!
Here is what I own in my own Retirement Account RRSP. I'm Canadian so everything I own is a Canadian stock. If I was proficient enough I would have no problem owning some dividend payers in the U.S.
Algonquin Power AQN - 4.6% yield
Bank of Montreal BMO - 3.7%
Bank of Nova Scotia BNS - 4%
Bell Canada BCE - 5.4%
Canadian Imperial Bank of Commerce - 4.5%
Emera EMA - 5.4%
Enbridge ENB - 6.3%
Enercare ECI - 5.1%
Fortis FTS - 4%
National Bank NA - 3.8%
Power Corp of Canada POW - 4.7%
Royal Bank RY - 3.5%
Shaw Communications SJR.B - 4.7%
Toronto Dominion Bank TD - 3.2%
Transcanada Corp TRP - 4.7%
Total Yield = 4.5%
Portfolio generates a yield 2.5% above inflation and 3.5% above a high interest savings account. It is well diversified among banks, utilities, telcos and energy infrastructure companies. At 61 years old I will hold all these stocks until I'm 71 and have to convert my RSP into a RRIF.
At that point I can still withdraw 4% a year and still be ahead on yield with the potential for all stocks to grow in value. Eventually I will have accumulated more in dividends than I paid for the stock. It will take time but that's all I have left.
As you can see I don't hold any bonds. I collect an employer pension, CPP and a small military pension. I consider these as my long bond portion of my retirement account. They are all indexed and they make for a nice supplement.
I see no reason for me personally to fix any portion of my portfolio to bonds or any other fixed income product. It's just what I do.
I will just hold my dividend stocks through thick and thin and never sell them. As Warren Buffett says, " The best holding period is forever".
As you can see I don't hold any bonds. I collect an employer pension, CPP and a small military pension. I consider these as my long bond portion of my retirement account. They are all indexed and they make for a nice supplement.
I see no reason for me personally to fix any portion of my portfolio to bonds or any other fixed income product. It's just what I do.
I will just hold my dividend stocks through thick and thin and never sell them. As Warren Buffett says, " The best holding period is forever".
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