After paying off an education and buying a house, the largest pool of saving for many of us is retirement. Here at Morningstar.ca, we have several ideas on how to save money for retirement, how much money you need in retirement and when you might retire.
But once you start accumulating a retirement fund, where should you invest? If you're a stock investor, which ones make sense for the long term? Today, we want to address these questions and come up with some ideas on where to invest for retirement, and to do this, we asked senior analyst at Morningstar Investment Management, Robert Miehm, to pick three stocks to hold for retirement.
Retirement planning is usually a long-term goal, and several investors have a longer time horizon of at least 15 or 20 years. The stocks we present here are selected based on the Morningstar Rating for stocks, dividend yield and economic moat.
"We should note here, that a stock's star rating takes into consideration the stock's current price, our estimate of its fair value, and the uncertainty rating of its fair value. The moat gives us an indication of a company's strength and the sustainability of its competitive advantage," said Miehm.
As always, these stock picks should not be seen in isolation. Investors should consider them as a part of a well-thought-out retirement strategy, that takes into consideration time horizon, withdrawal rates as well as risk appetite, or your willingness and ability to take on risk, Miehm noted.
So here are three Canadian stocks that one could hold as a part of a retirement portfolio:
| Name | Dividend Yield | Economic Moat | Star Rating | |
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| BCE Inc. | 5.86 | Narrow | **** | |
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| Nutrien Ltd. | 2.64 | Narrow | *** | |
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| Royal Bank of Canada | 3.75 | Wide | *** | |
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| Source: Morningstar. As of Oct. 12, 2018. | ||||
Royal Bank of Canada (RY) is one of the two largest banks in Canada by assets and one of six that collectively hold roughly 90% of the nation's banking deposits. It is currently a 3-star rated stock, with a wide economic moat and a 3.75% dividend yield.
"We like Royal Bank because of its strong market share in banking and non-banking business lines, with good returns on equity, financial health and efficiency ratios," Miehm said. A risk in holding the stock would be the turning of the housing market, and high debt levels among consumers, resulting in a greater likelihood of consumer defaults.
BCE Inc. (BCE) is both a wireless and Internet service provider, offering wireless, broadband, television and landline phone services in Canada through its Bell brand. In 2017, the wireline segment comprised 55% of total revenue, while wireless comprised 35%. Media provided the remainder. It is currently a 4-star rated stock, with a narrow moat and a 5.86% dividend yield.
"We think BCE has significant upside from here given its current valuation and its favourable position as a Canadian provider of wireline and wireless services. The upside is expected to be driven by EBITDA margin expansion in its wireline segment, where BCE has a more significant presence because its network extends to about three quarters of Canada's population," Miehm said.
Nutrien (NTR) was formed in 2018 as a result of the merger between Potash Corporation of Saskatchewan and Agrium. It is the world's largest fertilizer producer by capacity. Nutrien produces the three main crop nutrients--nitrogen, potash and phosphate--although the company's main focus is potash, where it is the global leader in installed capacity with roughly 20% share.
On Sept. 24, Nutrien announced that executive chairman Jochen Tilk would be retiring at the end of September 2018. Lead Director Derek Pannell assumed the role of non-executive chair of the board until the 2019 annual governance meeting, when a new board chair will be elected. Nutrien is currently a 3-star stock, with a narrow economic moat and a 2.64% dividend yield.
"Nutrien holds a strong competitive position. They have approximately 1,600 retail locations worldwide, helping growers get their products to market. We expect strong earnings growth with Nutrien as demand for its products will rise as countries move to increase crop yields and secure food supply," Miehm said.
