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Retirees or those close to retirement tend to prefer dividend-paying stocks for their passive income. While there is nothing wrong with this investing approach, it can come at the expense of a portfolio's total returns.
Earning a high dividend yield can be attractive with the prospect of a high return on tangible cash. However, dividend income can often come at the cost of poor or even declining stock performance. What's the point of earning an 8% dividend yield if your capital declines by 10% to 20% (or more)?
As a result, many retirees are better off looking for stocks that provide a combination of income and consistently growing returns on capital over time. If you're looking for some stock gems that can provide solid long-term returns, here are three to consider today.
A resilient retailer for retirees
Couche-Tard Feeds (TSX:ATD) is a resilient and well-managed company. Travel convenience and fuel/charging stations are essential services that everyone needs. This company has delivered exceptionally stable compounded annual stock returns of +13% over the past five years.
Couche-Tard has everything you are looking for in a long-term stock. It has a highly invested executive team, a track record of pro-shareholder decisions (i.e. dividend growth and aggressive share buybacks), a track record of intelligent capital allocation, and a strong portfolio of assets/brands.
Couche-Tard only yields 0.9% today. However, it has increased its dividend at an annual rate of +25% over the last decade. Likewise, whenever stocks see weakness, management is eager to buy shares. In recent years it has already bought 13% of its shares.
This company is looking to double its profits in the next four years, so shareholders have a good chance of doubling their money in that time.
An energy stock that withstands the cycles
Another good growth stock for retirees is Canadian natural resources (TSX:CNQ). Admittedly, this is a bit riskier because CNQ is a commodity-dependent business. However, it has established a business that can withstand almost any market cycle.
You just reached your long-term debt goal. It now plans to return 100% of its excess cash flow to shareholders. The company has decades (like seven decades) of Bookings which can be unlocked with just incremental spending. Those reserves are barely factored into the stock price today.
Likewise, the company is known to be shareholder-friendly. Its president and executive team own a large stake in the business.
Currently it yields only 3.6%. However, this stock is primed for more share buybacks, potential special dividends, and dividend growth in the future.
Transportation Stocks Retirees Can Own to Boost Earnings and Dividends
A quality ending stock for retirees is TFI International (TSX:TFII). It shares many of the same characteristics as the stock above: a highly invested CEO/management team, a track record of excellent capital allocation, a strong balance sheet, and room to continue generating strong returns.
TFI is a transportation leader in Canada. He has an important opportunity to be a strong actor in the United States. This company has room to increase profits by improving operational efficiency. Likewise, the transportation market remains highly fragmented, so there is no shortage of acquisitions.
TFI only pays a minuscule 1% dividend yield. However, it has increased its dividend by a nice compound annual growth rate of +12%. For a stock with a smart business and solid growth ahead, TFI is a great bet for retirees.
