Retirement planning: Now is the time to buy dividend-paying stocks

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Planning for retirement requires planning ahead. A key element is to invest excess cash. The US market entered bearish territory by falling more than 20%. The Canadian stock market only corrected by about 12%.

Central banks raise interest rates to curb high inflation. Just last Wednesday, the Federal Reserve raised the benchmark interest rate by 0.75%, the biggest jump since 1994, to 1.5-1.75%. This reference interest rate could cross the 3% mark by the end of the year.

The scenario is similar in Canada. On June 1, the Bank of Canada raised the target for the overnight rate from 0.50% to 1.5%. While central banks are expected to raise benchmark interest rates throughout the year in an attempt to calm inflation, market sentiment simply cannot be bullish.

A tremendous buying opportunity is available to all investors. If you have excess cash to invest, now is the time to start researching potential stocks to buy. Stocks are not necessarily risky. In the area of ​​equities, investors can choose low-risk stocks for retirement planning, that is, stocks that they intend to hold until retirement. Among the most defensive stocks to own in retirement are quality dividend stocks that pay dividends come hell or high water.

Also, in retirement, you want assets that generate income. Why not build your stock portfolio around dividend stocks during this market correction as part of your retirement plan?

Quality Dividend Stocks on Sale

For your retirement portfolio, investors should consider buying quality dividend-paying stocks on sale. For example, the shares of major Canadian banks are becoming more attractive as the downtrend continues in this declining market.

One of the best performing bank stocks is Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM). In its 2021 annual report, the bank explained that its core strategy included strengthening its franchise with Canadian consumers and growing its commercial banking, wealth management and capital markets businesses in North America. Over the past 10 years or so, the bank has increased its dividend per share by around 6% a year – growth supported by growing earnings.

At $64 and change per share at the time of writing, the dividend-paying stock offers a yield of nearly 5.2%, which is decently compelling. Analysts believe the bank is trading at a nice discount of around 19%. However, it is possible that it will decline over the next three to six months.

Assuming a long-term growth rate of 6% and a dividend of 5%, an approximate long-term total return is around 11% assuming no valuation increase. Expanding valuations can add another 4% to total returns.

The Takeaways of the Foolish Investor

The next three to six months could be the perfect time to accumulate quality, dividend-paying stocks at attractive prices. In other words, now is the time to identify wonderful companies from different sectors or industries that pay safe and juicy dividends. If you do it right, you can even hold these dividend-paying stocks until retirement for essentially growing passive income.

What interested investors should do is determine the level of discount at which they want to buy these dividend-paying stocks, whether it is a minimum discount of 20% or 30%. Essentially, set buying targets for a basket of quality diversified dividend stocks and determine how you will allocate excess capital over the next few months on the incredible buying opportunity of this market correction.

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