The Canada Pension Plan, or CPP, is a pension program for Canadian retirees. The maximum monthly payment for new beneficiaries in 2021 is $ 1,203.75, while the average payment is $ 736.58. It is quite obvious that Canadians should not depend solely on the CPP in retirement and must have multiple sources of income to lead a comfortable life.
One way to create a passive income stream is to invest in quality dividend paying stocks with attractive but sustainable returns. A top-notch stock paying dividends on the TSX is Keyera (TSX: KEY), one of the largest operators of midstream natural gas and liquids companies in Canada.
Keyera recently released its first quarter results. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $ 225 million and net income was $ 86 million. Its collection and processing and liquids infrastructure segments both generated better margins than in 2020, while its marketing segment saw a decline.
Here’s why the stock is well positioned to gain momentum in 2021, making it a good buy for retirees.
A return of more than 6% will top up the CPP payments
Around 70% of Keyera’s cash comes from take-or-pay contracts with an average term of seven years. Additionally, 68% of its cash flow comes from blue chip parties. The company is clear about protecting its downsides, which gives its cash flow great predictability and consistency.
Keyera’s strong cash position allows it to continue to increase its dividend payment. It targets a payout of between 50% and 70% of distributable cash flow and has been quite successful in meeting those targets. The company’s forward dividend yield currently stands at 6.27%.
It has increased its dividend yield by 7% on a compound annual growth rate (CAGR) basis since 2008. Keyera was successful in weathering the 2008-08 global financial crisis, the collapse in commodity prices between 2014 and 2016, and of course the pandemic over the past 15 months.
Keyera has an average return of 14% on invested capital over the past five years. The number for 2020 was below 11.4% due to the pandemic. The stock has already returned more than 36% in 2021 alone and has recovered from the fall it suffered in March 2020. An article by fellow Fool Amy Legate-Wolfe calculated that if investors had bought $ 10,000 of Keyera stock two decades ago would be worth the investment. nearly $ 40,000 today, after factoring in dividend reinvestments.
What’s the next step for investors?
Keyera has a number of projects slated for completion over the next two years. In 2021 we will see four projects completed, including the Wildhorse Terminal, while 2022 will see the suspension of the Nordegg River gas plant and the South Cheecham Sulfur facilities. In addition, in 2023, the company’s ambitious $ 1.3 billion KAPS liquid pipeline system will be completed.
Besides the numbers, a major factor in Keyera’s favor is the strong barrier to entry. Keyera is one of the largest mid-market players in Alberta. It has a 4,400 kilometer gas gathering network in western Alberta and the largest underground storage location in Alberta. These are assets that are difficult for competitors to replicate.
The insane takeaway
If you invest $ 10,000 in Keyera stocks today, you can generate over $ 600 in annual dividends, which will help you supplement your CPP payments. However, this article should be used as a starting point for your research to help you identify similar companies paying dividends on the TSX.
This article represents the opinion of the writer, who may disagree with the âofficialâ recommendation position of a premium Motley Fool service or advisor. We are Motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer, so we’re posting sometimes articles that may not meet recommendations, rankings or other content. .
The Motley Fool recommends KEYERA CORP. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.