Safe stocks to buy nearing retirement

If you're solely focused on the DRIP - then yes, this makes sense. However, should an investor buy a stock just because they can DRIP more shares? The answer should only be YES if all things being equal both companies are comparable in value, income and growth prospects. The answer is NO if one company is clearly the better company.

In your example, I'd actually consider them similar in quality and both provide excellent yields. That being said, BNS yields almost 1.50% more than Telus. In your $6K example, you'd receive $304.2 in dividends from Telus and $392.40 from BNS. So BNS is actually returning 28.9% more in dividends than Telus. You may not be able to DRIP, but you put that $$ away and you can buy more shares when you can. Bottom line - you are still receiving more from BNS and you can add to your position once you've accumulated more cash.

Today, BNS also provides better value but the financial sector may struggle for a little while yet. This is especially true if we see a second economic shutdown. Which you invest in should depend on your portfolio needs and mid to long-term outlook . Investors should not make a decision based on the DRIP alone - unless as I mentioned they offer the same value, income and growth prospects. In that instance, selecting the one that allows an investor to accumulate more shares makes sense.

Thanks for the response Mat.
I understand what you mean that the stock price is irrelevant because its based on value and income, but lets say you only have the yearly contribution room of $6000 in your TFSA and you want to invest in a safe stock such as Telus or BNS. Wouldn’t you be better off buying Telus compared to BNS simply because you’d be able to buy more shares of Telus and thus be eligible for the DRIP? That way even once you’ve run out of room in the TFSA for contribution, the DRIP will get you more shares automatically?

For example:
Telus stock = $23 / share — this means $6000 / 23 = 260 shares
BNS stock = $55 / share — this means $6000 / 55 = 109 shares

In this example I’m sure with the allotment of $6000 both stock purchases would make you eligible for the DRIP. But what if you only had $4000 and the share prices stay the same as the above examples. Perhaps then you wouldn’t qualify for the DRIP for BNS but you would for Telus. So in this case, wouldn’t it be better to purchase Telus?

Thanks!

Hi there,

First off, the actual stock price doesn't matter. So whether the stock trades at $10 or $1,000, the actual stock price is irrelevant to whether or not you should buy. It is all about value, income and growth prospects. A $1,000 stock can actually be cheaper than a $10 stock, so don't get hung up on the actual stock price. A $1,000 stock can double in value just as quickly as a $10 stock. An investment decision should come down to fundamentals.

If you are at or near retirement, Telus along with the big banks and high-quality utilities make excellent income investments. They are all blue chip companies that will provide steady growth and income and will also lead to a less volatile portfolio. Telus and utilities are considered defensive investments.

The Big Banks have struggled recently, but they are trading at very cheap valuations and have been among the best invesments on the TSX for decades. They will rebound, it is just a matter of when. In the meantime, you can lock in high yields.

Mat