10 retirement stocks to buy now

Why the time has come to demand a little growth with your income

Retire Wealthy

Take a look at any retiree’s portfolio and you’ll see the same thing: it’s filled with high-yielding dividend stocks. For most golden-age investors, owning dividend-paying companies is a no-brainer. The income pays for day-to-date expenses, and research has shown that companies with a yield tend to post higher long-term total returns than those without. However, as many investors have learned over the past couple of months, owning dividend payers solely for the yield has its consequences.

The companies that retirees have gravitated to since the recession have been mainly in interest-rate-sensitive sectors, such as REITs and utilities. When bond rates rise, which they have this year, these stocks tend to fall in price as fixed-income products, which are safer to begin with, become more attractive. Because these sectors have been so popular, many companies have also become overvalued.

While retirees shouldn’t abandon dividend stocks, many investment experts are now looking for companies that provide a little growth with that income, rather than just a high yield. Jeff Turk, a portfolio manager at Cumberland Private Wealth Management, notes that because people live longer than they used to, portfolios need to increase in value, along with paying out a decent steady stream of cash. “Focus on investing in companies with good earnings and great growth that can grow their dividends,” he says.

Allan Small, a senior investment adviser with DWM Securities, likewise recommends growth-with-income stocks because they can beat inflation with a one-two punch, rather than just with capital gains or dividends. A portfolio that doesn’t grow and can’t index for inflation is technically losing value, even if returns don’t drop, he says.

The inevitable trade-off is that you will be taking on some additional risk; if the growth doesn’t materialize, the stock price could fall. But then the value of income stocks can fall too, as many have recently—especially if you overpay for them. Small adds that it’s just as risky to invest in the highest-yielding stocks. A large payout can often lead to a dividend cut.

The best buys for today’s retirement portfolio are companies that grow dividends annually and expand earnings every quarter, says Renato Anzovino, vice-president and portfolio manager with Heward Investment Management. He likes businesses that can grow earnings by 10% or more per year. “That will translate to 20% to 30% stock price appreciation over a few years,” he says.

Adding growth doesn’t mean buying the latest and greatest tech names, though. James Cole, senior vice-president and portfolio manager with Portland Investment Counsel, would rather see a company that has a long track record of steady growth than one that’s been soaring for a year or two. “I want to know what the company has done in the past,” he says. Some more growth-oriented companies have high price-to-earnings multiples, but if management has a history of improving the business, then it’s worth it. “If they have significant total return potential—dividend and principal growth—then there’s limited downside risk,” he explains.

Fortunately, these types of companies aren’t difficult to find. Small suggests looking at companies in the financial sector, while Turk sees opportunities in U.S.-based multinationals. But wherever you look, the message is the same: stop searching for yield and look for good operations that grow earnings and dividends instead. “Markets change,” says Turk. “People need to start investing differently.”


Consider these picks for income and growth


This Calgary-based business provides camp accommodation and equipment rentals to the oil and gas industry. It benefits when more oilsands projects go ahead. It should also see more business when liquefied natural gas terminals get built in B.C.


This Toronto-based bank will benefit from rising interest rates— “they can take money in and put it out at higher loan rates,” Turk says—but also an expanding retail segment. Plus it’s the cheapest of the Big Five.


Turk likes this New York–based media giant because of the content it owns. “It has a huge library of content, and they haven’t been fairly paid for it,” he says. As people watch TV shows on more devices, CBS will benefit.


This Toronto-based restaurant chain has grown its earnings every year for the past five years, and it has doubled its dividend too, says Renato Anzovino of Heward Investment. He is optimistic that Tims’ U.S. expansion will work out.


This Toronto-based property and casualty insurance company has increased its dividend by more than 50% over the past three years while its stock price has climbed from $35 to $62. It’s a big player in a fragmented field.


This Toronto-based tech business is the fastest-growing dividend payer in Canada, says Anzovino. Its payment is up 85% over the past five years, while its stock price has increased 500% over the same time.


This Montreal, Que.–based telecom is better known as a steady-earning dividend payer, but DWM Securities’ Allan Small thinks it can generate some good growth. It’s now a multimedia company, so it’s less reliant on declining landline revenues.


It’s hard to find a better buy than this New York–based bank. It’s cheap, it pays a decent yield, and it’s going to grow along with the U.S. economy. It also bought some big businesses during the recession and that will pay off now.


This London-based integrated oil company is poised for a rebound, says Small. He admits it’s a controversial name, but it still makes money, and once litigation over the Deepwater Horizon debacle is done, it will be able to retain more of its earnings.


With this Armonk, N.Y.–based technology giant, you’re getting a company that’s increased its dividend for 18 straight years and has a proven that it can grow its earnings over the long term.