Top 3 Canadian Retirement Stocks for 2020


Where retirees invest their money in 2020? How can you make sure you pick great stocks this year? Here are my top 3 Canadian stocks for 2020.

Once we retire, we don’t want to jeopardize our hard-earned money into high flying stocks. Retirees usually seek for a stable source of income stream. Therefore, dividend growth payers are great candidates for any retirement portfolios.

Retirement stocks must show a specific set of characteristics. Those companies must show a stable and predictable cash flow. Companies in the utilities or REITs sectors are usually preferred for that reason. Income seeking investors will tend to select high yielding stocks to generate stronger revenues. I rather pick companies with better growth vectors offering at 4-5% yield. I focus on dividend safety over higher yields. The following ideas will be great candidates for 2020.

Dividend Safety Comes First!

At retirement, the focus should be put on dividend growth when you are feeling unsure about the market. As we start 2020, it’s a good time to assess the dividend safety of each of your holding.

Keep in mind that dividends aren’t magic; they’re a result of strong free cash flows, not causes of good free cash flows.

What usually happens when you find companies generating strong free cash flows? They usually offer a reliable dividend growth policy and their share price tends to rise over the long haul making you a richer investor. At DSR we have created our own Dividend Safety Score ratings:

5 = Stellar dividend – Past, present, and future dividend growth perspectives are marvelous.

4 = Good dividend – The company shows sustainable dividend growth perspectives.

3 = Decent dividend – Don’t expect much than a 3-5% dividend growth.

2 = Dividend is safe but – Not likely to increase this year.

1= Dividend Trash – It has been cut or is this situation not sustainable.

This is a simple system that can be applied to all portfolios. You can use a similar chart to evaluate your own holdings. Here are you should manage each dividend safety categories:

When reviewing your portfolio, you should seriously try to justify why you keep all “1’s” and “2’s” in your portfolio. If you can’t come up with a strong investment thesis, chances are those should be sold… not eventually, but now. Dividend trash has cut their dividend within the past 12 months or is about to do it. The dividend of “2’s” show no dividend growth for a while. Remember, an absence of dividend growth is the first step before a dividend cut.

Then, “3’s” should be reviewed quarterly to make sure the situation doesn’t change. “Decent dividend” rated stocks offer a modest dividend growth perspective that should beat inflation. However, keep an eye on them to make sure management keeps its promise each year.

Dividend scores of “4” and “5” offer great dividend growth perspectives. They usually show a strong dividend history and payout ratios that are under control for the future. The dividend safety is not only about the past, but also about the company’s ability to maintain its dividend growth streak going forward.

When selecting new holdings for your portfolio, I would favor only companies with a score of “4” or “5”. Those companies won’t let you down should the market turn rocky for a while. You can count on those payments to smooth the path that leads you to retirement.

Now let’s see about some of my top Canadian retirement stocks for 2020.

The selection methodology of those companies is explained in this article:

What should a Dividend Growth Investor buy in 2020?

Enbridge (ENB)(ENB.TO)

enbridge pipelines

Market cap: 79.18B

Yield: 5.67%

Revenue growth (5yr, annualized): 2.28%

EPS growth rate ((5yr, annualized): 22.63%

Dividend growth rate (5yr, annualized): 11.10%

Without a doubt, nobody will be surprised that I have Enbridge on the top of my list. The company is operating one of the widest and most diversified pipeline systems in North America. Enbridge operates the world’s longest and most complex crude oil and liquids transportation system with approximately 17,127 miles (27,564 kilometers) of active crude pipeline across North America—including 8,627 miles (13,883 km) of active pipe in the United States, and 8,500 miles (13,681 km) of active pipe in Canada. Then, ENB also moves about 20% of all the natural gas consumed in the U.S. Finally, the company serves more than 3.7M residential, commercial, institutional and industrial customers in Ontario and Quebec, distributing more than 2.65 Bcf/d (billion cubic feet per day) of natural gas.

enbridge dividend

You may have read in a previous newsletter that your focus should be on the dividend payment, not the stock price. Over the past 5 years, Enbridge has been at the center of many sources of concerns (its financial structure, regulations affected its expansion plan and the merger of all its business units). During the storm, management continued to follow their beacon and increased their dividends consistently. The company is a real money-making machine with 64 years of dividend history including 24 years (and counting) of consecutive increases to the dividend.

Intertape Polymer (ITP.TO)

duct tape

Market cap: $941M

Yield: 4.77%

Revenue growth (5yr, annualized): 11.14%

EPS growth rate ((5yr, annualized): -1.82% (acquisitions affected earnings)

Dividend growth rate (5yr, annualized): 4.14% (paid in USD)

With the rise of online shopping, the packaging industry should benefit from this tailwind. ITP expects to reach $1.5 billion in sales by 2022. Intertape is #1 and #2 in its main market in North America and shows international expansion opportunities. Management also expects to grow by acquisition to expand its current line of products, consolidate its activities, and open additional doors in international markets. In August 2018, the company completed the acquisition of Polyair Inter Pack for $146M. This was a strategic move to expand ITP’s product offerings while opening doors to cross-selling opportunities to PIP’s clients.

intertape polymer acquisitions

Source: November Investor presentation

The ITP dividend more than doubled over the past 5 years (in CAD), and the company shows solid payout ratios. Keep in mind the dividend payment is in USD (currently $0.147USD/share). Don’t expect regular dividend increases as the company uses most of its cash for acquisitions to increase its revenue. Nonetheless, shareholders can expect a mid-single-digit dividend growth rate for the upcoming years.

Brookfield Property Partners LP (BPY.UN.TO) (BPY)

brookfield property partners

Market cap: 23B

Yield: 7.13%

Revenue growth (5yr, annualized): 16.66%

EPS growth rate ((5yr, annualized): 15.07%

Dividend growth rate (5yr, annualized): 25.97%

As I mentioned in the sector review, Canadian REITs probably offer some of the best high yielding opportunities at this time. Brookfield Property Partners trades on both U.S. and Canadian markets and is part of the “Brookfield family”. BPY is mostly an Office (41%) and Retail (43%) REIT that is diversified across the world with nearly $200B in Real Estate assets. The REIT is managing some of the most important buildings in the world.

brookfield property partners assets

Source: BPY investors presentation

The company shows over 100 years of history as an owner-operator. It has the expertise to manage through any type of recession. Management’s vision is all about growth through organic projects and acquisitions.

While I mentioned that I don’t like retail REITs, BPY has a unique strategy for retail malls. It focuses on buying top-tier shopping malls that have adjacent land that can be developed with hotels, offices, and residences. It’s not the same game when you are in the “building an entire environment including stores to attract people” game.

Find out about 6 companies that will crush 2020

Each year, I compile 20+ stocks that are expected to do better than the market. In 2019, my US picks outperformed the market by 7% and my Canadian picks did 10% better than the TSX. You can download 6 of my top 20 for 2020 right here:

Disclaimer: I hold shares of Enbridge and Intertape Polymer


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