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Blue-Chip Stocks = Reliable Dividend Income for Retirement

Happy Retirement” on a road
Image source: Getty Images

Written by Aditya Raghunath at The Motley Fool Canada

Investing in fundamentally strong blue-chip stocks is a proven strategy to build long-term wealth. Typically, blue-chip companies enjoy multiple competitive moats and market-leading positions, allowing them to generate stable cash flows across market cycles. Moreover, they reinvest these cash flows in growth projects and distribute a portion of the earnings to shareholders via dividends.

A widening base of cash flows generally translates to higher dividend payouts over time, enhancing the effective yield in the process.

Here are three dividend-paying, blue-chip stocks you can buy right now that can help you generate a reliable passive income for retirement.

Tourmaline Oil stock

Valued at $23 billion by market cap, Tourmaline Oil (TSX:TOU) is one of the largest natural gas producers in Canada. The TSX energy stock went public in late 2010 and has since returned 216% to shareholders. However, if we adjust for dividend reinvestments, total returns are much higher at 351%.

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In the last 12 months, Tourmaline reported an operating cash flow of $3.71 billion, or $10.73 per share. It spent more than $2 billion in capital expenditures and reported a free cash flow of $1.69 billion in 2023.

The TSX giant pays investors an annual dividend of $1.20 per share, indicating a yield of less than 2%. But it consistently pays shareholders a special dividend, raising its trailing 12-month yield to an attractive 10%

TOU has raised its dividends 13 times since it began the payout six years back.

Restaurants Brands International stock

Restaurants Brands International (TSX:QSR) is the parent company of fast-food chains such as Burger Kings, Popeyes, and Tim Hortons. Valued at $22 billion by market cap, the TSX stock has more than tripled investor returns since its IPO (initial public offering) in late 2014.

Despite these outsized gains, the quick-service restaurant operator offers you a forward yield of 3.2%, given its annual dividend payout of $3.14 per share.

With more than US$40 billion in system-wide sales annually, QSR aims to end 2028 with 40,000 restaurants and US$60 billion in system-wide sales. It also aims to exit 2028 with an adjusted operating income of US$3.2 billion.

Restaurant Brands expects its investment horizon should result in low double-digit shareholder returns in this period, comfortably beating the TSX index.

Bank of Nova Scotia stock

The final TSX dividend stock on my list is Bank of Nova Scotia (TSX:BNS), which offers a forward yield of 6.6%. While the banking sector is cyclical, BNS has a conservative approach to lending, which has helped it maintain the dividend payout even during the financial crisis in 2008.

Unlike other TSX banks, BNS has a sizeable exposure to emerging economies in South America, which should be a key driver of earnings growth in the upcoming decade.

Priced at 10 times forward earnings, BNS is forecast to expand its earnings by more than 6% annually in the next five years. Analysts remain bullish and expect BNS stock to gain over 6% in the next 12 months. After adjusting for its dividend yield, total returns will be closer to 13%.

The post Blue-Chip Stocks = Reliable Dividend Income for Retirement appeared first on The Motley Fool Canada.

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Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Bank Of Nova Scotia, Restaurant Brands International, and Tourmaline Oil. The Motley Fool has a disclosure policy.

2024