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Many retired Canadians own dividend stocks to supplement their Old Age Security (OAS) and Canada Pension Plan (CPP). Although both pensions are for life, their total amounts are not sufficient to ensure the desired quality of life in retirement. On the TSX, two blue-chip stocks are changing the game for retirees.
If everlasting streams of income are your goal in the sunset years, you can’t go wrong Royal Bank from Canada (TSX:RY)(NYSE:RY) and Enbridge (TSX:ENB)(NYSE:ENB). The former is the most valuable publicly traded company in Canada, while the latter has a low-risk commercial and financial profile.
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Make it your high priority
Retired Canadians or prospective retirees should prioritize creating low-risk, passive income through their Tax-Exempt Savings Accounts (TFSAs). When you hold RBC or Enbridge shares in your tax-advantaged investment account, you’re assured of uninterrupted cash inflows on a quarterly basis.
The average dividend yield of the big bank (4.04%) and the energy infrastructure company (6.06%) is 5.05%. If you allocate $3,000 each to maximize your TFSA limit for 2022, your money will generate $75.75 each quarter. Assuming your available contribution space is $50,000, your quarterly tax-free income is $631.25.
Multiple dividend increases
RBC has been paying dividends since 1870 (152 years). The $178 billion bank increased its dividends by 11% at the end of 2021, and then announced a 7% increase after it released its fiscal 2022 second-quarter results. For the first half of fiscal 2022 (six months ended April 30, 2022), net income increased 6%. year-over-year to $8.35 billion compared to the same quarter last year. The bank stock is trading at $126.68 per share.
The bank’s credit quality also improved in the quarter due to a $246 million decrease in total provision for credit losses (PCL). Dave McKay, President and CEO of RBC, said, “We remain well positioned for future growth and to create differentiated long-term value for our customers, employees and shareholders.”
RBC Wealth Management is preparing to acquire Brewin Dolphin by the end of Q3 2022. The acquisition of the London-based company will enable the Canadian bank to significantly transform its wealth management business in the region. It also means securing the number three market position in the UK and Ireland.
Enbridge is a quality investment given its diversified cash flow sources. Four blue chip franchises unite to drive cash flow growth. At $56.74 per share, you get real bang for your buck. The $117.23 billion company has increased its dividends for 27 straight years. Also, the total return over 3.01 years is 51.16% (14.74% CAGR).
In the first quarter of 2022, adjusted earnings increased 4.3% from the first quarter of 2021 to $1.7 billion. Notably, cash flow from operations increased 14.6% year over year to $2.93 billion. According to President and CEO Al Monaco, Enbridge’s competitive advantages include a diversified footprint, integrated transportation systems in North America and established renewable energy assets.
Retirees’ biggest concerns now are falling purchasing power and rising spending. According to a survey by RBC Insurance, 28% of retired Canadians are spending more than expected. The solution to addressing the dual concerns is to take control by holding breakthrough stocks in your TFSA.