Boost Retirement Income With Dividends

Retirees prefer a predictable stream of income from their investment portfolios.  Investing in high quality, dividend-paying companies can provide that income, often with regular increases.

The promise of regular cash along with capital appreciation can have greater appeal than lower risk fixed income options.

Plus, nothing makes a good case for dividends like today’s low interest rates.

I started buying dividend-paying stocks in my RRSP back in the 90’s.  I focused on Canadian companies at that time.  The major players in Canada – and the most reliable for dividends –  are the banks, utilities and telecoms. 

I didn’t get into US dividend payers for two reasons:

  1. Back then there was a 20% limit on foreign holdings in a RRSP, and
  2. The exchange rate was really bad (do you remember paying around $1.60 Cdn per $1 US ?)

So instead, I chose a hybrid strategy.  My US and international holdings were in mutual funds which I switched to lower cost ETFs when they became available.  This way I get some exposure to sectors not well represented in Canada such as consumer discretionary, technology and health care.

Last year, I decided to convert my RRSP to a RRIF.  So far, the minimum withdrawal is less than 4% so the payments easily come from my dividends. 

My focus is on reliable, rising dividend income with dividend growth providing inflation protection.  And it doesn’t take a lot of maintenance.

Here’s a link to MoneySense best dividend stocks.

Dividend paying ETFs

If you don’t want to spend time researching and purchasing individual stocks there are every variety of dividend paying etfs from market cap that hold the top companies to small cap, sector  and international funds – most of which payout some dividends.

ETFs are easy to buy through a discount brokerage and offer a simple low-cost way to own dozens if not hundreds of stocks to diversify your portfolio and still provide solid income distribution..

Related:  An All-in-One Solution to Simplify Your Portfolio

If your goal is yield, here are some good choices for you to consider:

Tax advantage

My RRIF dividends are taxable income.  However, one common reason to favour dividend stocks and ETFs in non-registered accounts is their tax-advantage, thanks to the dividend tax credit.  It can be a good benefit for those with no other income.  For example, you can receive about $60,000 in dividends from Canadian stocks without paying any federal tax at all.

The bottom line

Historical data has shown that dividend-paying companies regularly outperform their non-dividend paying competitors.  We won’t know if that will still be the case going forward. But it helps that my investments pay regular distributions.

It’s not easy to generate all the income you need just from dividends – few people will be able to manage that.  But using dividends as a part of my income minimizes the amount of capital I will have to withdraw – which can be a benefit for potentially riding out a bear market.

As always, before choosing any investment product, make sure it fits within your financial plan.

 

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