Generate Enough Retirement Income from Your Portfolio


When planning for retirement, you want to be sure you’ll generate enough retirement income from your portfolio. As you retire, you still have plenty of years ahead of you. Let’s make sure you don’t outlive your portfolio, shall we? There are two ways to generate income from your portfolio if you are a dividend investor. Let’s look closely at both.


Get your income entirely in dividends received from your investments. If you have $800,000 invested and need $30,000 per year, easy! Just ensure your portfolio averages 3.75% in dividend yield, and you’re done!

If all you need is a 3 to 4% yield, you won’t have much to worry about. Unfortunately, many retirees face entirely different situations, like needing $50,000 per year while having $600,00 invested. While there are smart ways to improve your dividend yield up to a point, generating a consistent 8.3% yield is not easy.

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How about high-income products?

There are generous Master Limited Partnerships (MLPs) or split share products generating 8%+ yield. However, a glance at their long-term returns show they might not be the best income strategy. For example, Canoe Income Fund (EIT.UN.TO) and Financial 15 Split Corp (FTN.TO):

Two graphs showing 10-year total return of Canoe EIT Income Fund and Financial 15 Split

Over 10 years, Canoe’s dividend income was flat most of the time, eaten up by inflation year after year, while the stock price slowly but surely declined. Meanwhile, Financial 15 Split Corp investors also had flat dividend income; the dividend was cut 2020 and has flatlined, and the stock price dropped 60%.

Financial Split 15 was described as a “high-quality portfolio consisting of 15 financial services companies made up of Canadian and U.S. issuers”. This next graph clearly shows that buying stocks from three Canadian banks would have saved FTN.TO investors a lot of money, not to mention a lot of grief.

Graph of 10-year return showing NA.TO outperforming EIT.UN.TO and 3 canadian banks doing much better than FTN.TO

High-yield stocks then?

Many dividend investors think that capital gains don’t count until you cash them, while an 8% dividend yield is real, more secure.

They’re wrong to assume their 8% dividend yield is more secure than a total return of 8%  consisting of 3% yield and 5% capital gain. Sure, the 8% yield is easier to calculate and looks more stable. You pocket your dividends and move on. However, how many 8% yielders eventually cut their dividend and suffer massive capital loss? Enough to kill your retirement portfolio!

Look at the total returns over 10 years of four high-yield stocks that an investor was raving about in 2014 (ARCC, STWD, KMI, an BBEP) and a classic dividend growth ETF (VIG).

Graph showing that 10-year returns for high-yield stocks ARCC STWD KMI not better than Vanguard dividend ETF

Looking for BBEP? Don’t bother. It went bankrupt in 2018. Of these four “safe” high-yield stocks:

  • ARCC kept pace with the ETF
  • STWD did okay
  • KMI generated a loss (-20% including the dividend since 01/01/2014)
  • BBEP wiped out investor’s money completely

Choosing stocks with high yields is like skating at full speed without knowing how to turn. If not high-income products or high-yield stocks, then what’s the solution? Make your own dividend with a blended portfolio.

Blended portfolio

With a blended portfolio, you make your own dividend by focusing on total return rather than dividend alone.

I had a chat with an income-seeking investor who was comparing these to companies:

Canadian Utilities
Alimentation Couche-Tard
Utility with limited growth potential Growth-oriented company
50 years of dividend growth Impressive dividend growth rate
(22% CAGR over 5 years)
5.6% yield Mediocre yield of 0.8%

At 0.80% yield, it’ll take Couche-Tard forever to reach the Canadian Utilities’ yield. So, pick Canadian Utilities, forget Couche-Tard? Not so fast.

Total returns, remember?

Couche-Tard offers a low yield because uses most of its money to grow the business, adding value for shareholders. Rather than assessing revenue from Couche-Tard on its dividend alone, ask yourself this: will Couche-Tard’s stock price appreciation, combined with its dividend, surpass total returns for Canadian Utilities?

Compare $100K invested in ATD.TO and $100K in CU.TO ten years ago, with the dividends reinvested along the way.

Graph showing ATD.TO total return is over 600% over 10 years, compared to less than 40% for CU.TO

That’s right, over the past 10 years, ATD.TO surged more than 600%. CU.TO didn’t even hit 40%. Which of these stocks generated the most income? I didn’t cherry-pick ATD.TO and CU.TO to manufacture an extreme example; it’s a comparison a real investor was making and clearly shows the impact of considering total returns rather than only dividends.

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So, to generate enough retirement income

I’m not saying that you should invest everything in low-yield high-growth stocks like Couche-Tard and ignore the others. In retirement, we want some “sure shots” like CU.TO in our portfolio. They bring stability, a decent expectation of a good income year after year, and they make it a lot easier to budget.

There are smart ways to increase a low portfolio yield of 2% to a better 3-3.5%. For example, replace some low yield stocks with higher yield companies in the same sector. Or adjust your sector allocation to increase holdings in sectors that are more generous such as utilities, REITs, telcos, or Canadian banks.

Silhouette of person balancing on one foot on a rock peak with sunset in backgroundThe idea here is to strike a balance between low yield, high growth stocks and classic retirement stocks, such as utilities and REITs. This creates the perfect blended retirement portfolio rather than one focused solely on dividend yield. When retired, it’s easy to sell a few shares of your high growth investments, as needed, and create your own dividend.

Value is value, whether it’s the dividend or in the stock price. Build a portfolio filled with amazing dividend growers, and you won’t have to worry about your average dividend yield.

See also Retirement Withdrawal Strategy: Avoid Panic, Enjoy Life.


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