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MARKETS LIVE BLOG:

STOCKS RISE, LED BY STELLAR ALPHABET, MICROSOFT EARNINGS

Latest stubborn U.S. inflation reading will bring about more 'wait and see' from the Fed

Forget GICs: 2 Top Canadian Income Stocks Yielding 5% for Retirees

Andrew Walker
Where to Invest?
Where to Invest?

Company pensions, CPP, and OAS payments might not be enough to cover the bills these days.

As a result, many retirees are using their Tax-Free Savings Accounts (TFSAs) to hold REITS and dividend stocks that can generate a steady stream of investment income.

Let’s take a look at two companies that currently offer yields above 5% and should be solid picks for a balanced portfolio focused on reliable payouts.

Bank of Nova Scotia

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is one of Canada’s largest companies with a market capitalization of $87 billion and nearly 100,000 employees serving customers in Canada and abroad.

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The bank went on a buying spree in the past couple of years, adding two Canadian wealth management firms and a large stake in a bank in Chile. The integration of the new businesses is effectively complete and should help drive revenue growth in 2020 and beyond.

Bank of Nova Scotia is betting big on Latin America, focusing primarily on the Pacific Alliance countries that include Mexico, Peru, Chile, and Colombia. The group is home to a population that is more than six times that of Canada and is heavily underbanked compared to the home country.

This offers Bank of Nova Scotia solid growth potential, and the bank is already seeing the benefits of the investments. The international operations account for nearly 30% of total profits and are generating strong growth in deposits and loans.

The stock trades at a reasonable 10.8 times trailing earnings and provided a 5% dividend yield.

Risk?

A potential meltdown in the Canadian housing market is cited as a risk for Bank of Nova Scotia and its peers. Rising unemployment triggered by an economic downturn could cause a housing sell-off, but a significant crash is unlikely.

The economy is holding up well and low borrowing costs are helping existing homeowners renew mortgages at reasonable rates.

RioCan

RioCan Real Estate Investment Trust (TSX:REI.UN) is best known for being the owner and operator of shopping malls across Canada.

It seems that every week we see headlines about major retailers going bust, and RioCan has had a few high-profile department stores close their doors.

Online shopping will remain a challenge for the brick-and-mortar sector, but the malls are still popular and RioCan has been able to fill top locations with new tenants at higher rent rates. Its client base is diversified, with no single customer accounting for more than 5% of total revenue.

The management team is adjusting the company’s strategy to thrive in a changing environment. RioCan is selling up to $2 billion in non-core assets in secondary cities and is building mixed-used residential and retail buildings in six core markets, where demand for apartments and condos is strong and expected to increase as housing costs rise and urban centres become more crowed.

The first projects are seeing success, and RioCan has said it intends to build up to 10,000 residential units over a 10-year span.

This should drive strong revenue growth and support the distribution. RioCan’s payout currently provides a yield of 5.4%.

The trend toward low interest rates and falling bond yields is positive for RioCan. Reduced funding costs can free up cash for distributions and make the balance sheet more appealing to investors.

The bottom line is strong

Bank of Nova Scotia and RioCan are top Canadian companies with reliable distributions that offer above-average yield.

If you are searching for new additions to a TFSA income portfolio, these stocks deserve to be on your radar.

More reading

The Motley Fool recommends BANK OF NOVA SCOTIA. Fool contributor Andrew Walker has no position in any stock mentioned. Bank of Nova Scotia is a recommendation of Stock Advisor Canada.

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