Retirees want stocks that pay a reliable dividend stream and provide predictable growth for their portfolio. Capital preservation is crucial in this stage of life. However, so is additional investment income.
Retirees need to carve a fine line between owning a stock with an attractive yield and ensuring that the stock will also deliver good capital returns over time. If you want to sleep well in retirement, these two TSX dividend stocks provide the right mix of growth, income, and stability for the long term.
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Fortis: A 52-year dividend-growth record to back this stock
Fortis (TSX: FTS) is the quintessential stock for a retiree’s long-term portfolio. With a market cap of $40 billion, it is one of Canada’s largest utility companies. It also might be one of the best. It operates nine regulated transmission and distribution utilities across North America.
Fortis provides the essential backbone infrastructure for power and heating/cooling for over 3.5 million customers. Society needs these assets to function. As a result, Fortis earns a pretty predictable income stream. That is reflected in a stock that has a very low beta (low correlation and volatility compared to the broader market).
Fortis has an A- credit rating and a well-planned, well-laddered debt structure. This supports its sturdy ambitions to grow its rate base by a 7% compounded annual growth rate (CAGR) for the coming five years. The rise in data centres and the electrification of society support decades of growth beyond that.
Fortis has a 52-year history of growing its dividend annually. It targets 4-6% annual dividend growth for the coming five years. After a recent pullback, this stock yields 3.4%.
While it is not the cheapest utility, you get a nice mix of growth and income. Fortis stock has historically delivered a 10% compounded annual return, which is attractive given how low risk this investment has been.
Pembina Pipeline: A rising dividend stream in the coming years
Pembina Pipeline (TSX: PPL) is an attractive option if you want a higher dividend yield. It yields 4.4%. With a market cap of $39 billion, Pembina is one of the largest energy infrastructure businesses operating in Western Canada.
Pembina provides energy producers with crucial access to markets through its collection of pipelines, midstream/processing facilities, and export terminals. Over 85% of its income is contracted, and that provides wide funding for its growing dividend.
The company is broadening its infrastructure platform. It is constructing an LNG export terminal in British Columbia (one of only a few approved), has agreements to power data centres in Alberta, and to provide ethane supply for chemical manufacturing.
The company is becoming more diversified. It is using its leadership position to increase its proportion of contracted income. Pembina has a strong balance sheet that can support its growth ambitions without any shareholder dilutions. It is aiming for 5-7% earnings before interest, tax, depreciation, and amortization (EBITDA) compounded annual growth all the way to 2030.
Pembina paid its dividend even through the 2020 energy crash. This demonstrates the resilience of its business and its counterparties. Since 2022, it has raised its dividend every single year.
The Foolish bottom line
While Fortis and Pembina Pipeline might not be the most exciting businesses, they are well-managed, have solid balance sheets, and expect solid annual growth. That should translate into more dividends in your pocketbook over time. The best part is you can buy these stocks, tuck them away, and enjoy the income without too much stress in your life.
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