Most retirees dream of having more than enough money to live comfortably in retirement. That can be tough to do given that many live on fixed incomes, which is potentially a problem since inflation will likely cause expenses to rise. That said, retirees can avoid this obstacle by having a secure source of income that can grow faster than the rate of inflation and help offset its impact.

One such option is to invest in dividend growth stocks because these companies will pay a rising stream of cash flow to investors. While retirees have several options to choose from, Canadian pipeline giant TransCanada (TRP 0.33%) is a top choice. That's because the company has rock-solid financials and offers visible income growth, which is a dream combination for a retiree.

A retiree celebrating on the beach.

Investing in TransCanada could make this dream a reality for some retirees. Image source: Getty Images.

An excellent financial foundation

TransCanada is one of the most financially sound pipeline companies in the sector. At its core is a portfolio of fee-based and regulated assets that generate predictable cash flow. In fact, thanks to several strategic initiatives over the past year, the company now gets more than 95% of its earnings from these stable sources, up from 90% when it launched its accelerated growth plan in 2015.

That steady cash flow, when combined with the company's conservative financial management, has earned it an A credit rating. This means that the company can borrow money at cheaper rates than rivals and has unfettered access to capital, which proved to be a significant competitive advantage during the oil market downturn. For example, last year it was able to line up $10.3 billion in bank financing to help fund its $13 billion acquisition of Columbia Pipeline Group. It's a transaction that not only provided an immediate boost to cash flow, but nearly doubled TransCanada's pipeline of near-term growth projects. Contrast this with junk-rated rival Energy Transfer Equity (ET 0.44%), which walked away from its proposed merger with fellow junk-rated Williams Companies (WMB 0.31%) last year because of concerns that the $6 billion of incremental debt required to close the transaction would lead to "mutually assured destruction."

The final leg of TransCanada's top-notch financial profile is its healthy dividend coverage. Last year the company covered its payout 2.1 times, which keeps with its tradition of paying out less than half its cash flow in dividends each year, with it reinvesting the rest in high-return growth projects. Contrast that policy with the MLPs controlled by Energy Transfer Equity and Williams Companies that often paid out 100%, or more, of annual cash flow. Those aggressive payout policies led both Energy Transfer Partners (ETP) and Williams Partners (NYSE: WPZ) to slash their payout this year, forcing Williams Companies to cut its dividend. Furthermore, while Energy Transfer Equity has been able to avoid a similar payout cut, it hasn't grown its distribution in years.

TransCanada, on the other hand, has increased its dividend for 17 straight years -- and by a 7% compound annual rate over that time frame -- partly because of its more conservative coverage ratio.

A pipeline under construction in the mountains.

Image source: Getty Images.

Income growth on the horizon

TransCanada expects even more dividend growth in the years ahead. When it launched out on its current growth phase in 2015, the company thought it could grow its dividend by 8% to 10%, annually, through 2020. However, with the addition of Columbia Pipeline, the company now expects dividend increases to come in at the upper end of that range. 

The driving force behind TransCanada's growth expectations is the 23 billion Canadian dollars' ($17.3 billion) worth of capital projects it has underway across North America, all underpinned by long-term contracts or cost-of-service regulations. These projects should fuel steady cash flow growth as they come online over the next several years, with the company forecasting 10% compound annual earnings growth through 2020.

That said, TransCanada still has plenty growth left in the tank beyond 2020. That's because it secured CA$45 billion ($33.9 billion) of long-term growth opportunities, including four transformational projects. The company has already started making progress moving these projects from concept to development. For example, this week the pipeline giant announced that it had secured enough customers to go ahead with a CA$2 billion ($1.5 billion) expansion of its NGTL system in Western Canada. That's in addition to the CA$5.1 billion ($3.8 billion) of near-term growth projects already underway at NGTL. This next wave of projects should begin entering service in early 2019, with the final start-up expected in mid-2021. Meanwhile, there has been positive momentum on three of its four transformational projects this year, increasing the likelihood that it can continue growing its dividend at a rapid rate well into the 2020s.

Investor takeaway

With a rock-solid balance sheet and conservative financial profile, TransCanada is one of the best run pipeline companies in North America, which enables it to pay a sustainable dividend. Meanwhile, with several expansion projects underway, that payout is on pace to rise at a rapid rate over the next several years. For retirees looking for a safe way to battle inflation, those factors make TransCanada an ideal stock.