The Only Stock You Need to Buy and Hold for Retirement for $307.42 a Month
Retirement can be a lengthy period, often surpassing the duration of a mortgage, yet the income that funds it frequently ceases on the first day.
Retirement Income Challenge
Retirement can be a lengthy period, often surpassing the duration of a mortgage, yet the income that funds it frequently ceases on the first day. A reliable dividend can help replace part of that lost income, but it must consistently arrive through economic downturns, market crashes, and periods of high inflation. This makes finding a suitable retirement stock considerably more challenging than simply ranking yields from largest to smallest.
Key Requirements for Retirement Stock
For retirement income to be effective, it must cover current expenses and keep pace with future costs. A dividend that remains stagnant over time gradually loses its purchasing power due to inflation, even if the dollar amount appears dependable. Therefore, retirees require a durable payout, dividend growth, and sufficient remaining earnings for the company to continue expanding.
Payment Frequency and Reinvestment
The frequency of dividend payments is less critical than many investors assume. A quarterly dividend can be distributed across three months or reinvested while the individual is still working. Reinvesting dividends from Canadian stocks allows for the purchase of additional shares, enabling the next distribution to be slightly larger.
Banking Sector Considerations
Banks are also subject to capital requirements. The Common Equity Tier 1 (CET1) ratio measures a bank's highest-quality capital against its risk-weighted assets. The Office of the Superintendent of Financial Institutions (OSFI) expects Canada's largest banks to maintain an 11% CET1 ratio. This extra capital helps absorb loan losses without immediately jeopardizing the dividend.
Diversification and Risk Management
No single company should constitute an entire retirement portfolio. Combining stocks with fixed income, cash, and different sectors can mitigate the impact of an unfavorable earnings report on the overall portfolio. However, if one company had to serve as the anchor for retirement income, a history of uninterrupted payments spanning nearly two centuries would be highly attractive.
Bank of Nova Scotia's Track Record
Bank of Nova Scotia (TSX:BNS) paid its first dividend in 1833 and has maintained a continuous payment record since then. The bank offers a range of services, including personal and commercial banking, wealth management, investment banking, and capital markets services across Canada and several international markets. This diversification provides multiple avenues for generating revenue throughout an economic cycle.
Strategic Focus and Recent Performance
Scotiabank has been concentrating more capital in Canada, the United States, and Mexico, while simplifying its less profitable operations elsewhere. This strategic shift is beginning to reflect in its financial performance, which recently provided management with the confidence to increase the income stream.
Financial Highlights
In the second quarter, Scotiabank's adjusted earnings per share (EPS) rose to $2.02 from $1.52 in the same period the previous year. The bank subsequently raised its quarterly dividend from $1.10 to $1.14. Its CET1 ratio stood at 13.3% at the end of the quarter, exceeding the regulatory expectation even after share repurchases.
Dividend Yield and Investment Considerations
The annualized dividend of $4.56 yields approximately 3.7% at the time of writing. While this may not be the highest yield on the TSX, the bank's long history of uninterrupted payments provides significant comfort. For investors using a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP), sufficient contribution room is required, and dividends in non-registered accounts may qualify for the Canadian dividend tax credit. A $100,000 investment would purchase 809 whole shares for $99,951.95, generating $3,689.04 annually, or approximately $307.42 per month.
Investment Strategy
However, Scotiabank's stock is currently trading near its record high following a significant rally in Canadian banks. A recession could lead to increased credit losses, and the high stock price leaves less room for disappointment. Therefore, it would be prudent to build a position in the stock gradually rather than investing a large sum at once.
Source: fool.ca · 2026-08-18