When you are retired, your investment risk profile changes, as does your need for income. You want the highest-dividend stocks you can get while still not assuming too much risk. After all, dividend income is a key pillar of retirement investing strategy because retired folks aren’t earning that regular paycheck any more.
The highest-dividend stocks used to be telecom-driven, and that hasn’t changed too much. However, many new securities have entered the market to give those lofty yields some competition. Some offer higher yields with less risk. Others seemed exotic to retirement investors merely a couple years ago, but have become much more mainstream as the Fed’s quantitative easing program has pushed people further out on the risk curve as bond yields have dried up.
Here are five suggestions for the highest-dividend stocks that balance risk with that all-important dividend payment.
Best Dividend Stocks for Retirement – AT&T (T)
T Dividend Yield: 5.1%
I mentioned telecom earlier, so let’s start with AT&T (T). The venerable telecom company may not be growing earnings so much, but there’s nothing wrong with a company that routinely generates $14 billion of annual free cash flow. AT&T uses about 70% of that FCF to pay shareholders, making T stock one of the highest-dividend stocks out there, and one of the most secure.
AT&T’s purchase of DirecTV (DTV) shouldn’t affect its ability to pay that dividend, either, since DTV has great FCF as well.
T stock doesn’t have much volatility, so capital preservation isn’t much of a worry, and its 5%-plus yield is safe for a long time.
Best Dividend Stocks for Retirement – Ashford Hospitality Trust (AHT)
AHT Dividend Yield: 4.4%
Ashford Hospitality Trust (AHT) is a terrific hotel REIT with properties all over the country, diversified in both asset class and geography. Ashford manages capital better than any other hotel REIT, routinely refinancing its debt and pushing maturities out several years, and instituting interest-rate hedges that optimize debt service.
Management has been in the hotel business for 25 years, and while Ashford did have to suspend its common dividend during the financial crisis, it at least preserved its preferreds — a rarity in the space.
AHT’s 4.4% yield is attractive for common stock, and its Preferred D shares offer a fantastic yield of more than 8%.
Best Dividend Stocks for Retirement – Kinder Morgan Energy Partners, LP (KMP)
KMP Distribution Yield: 6.7%
Kinder Morgan Energy Partners, LP (KMP) is the cream of the energy pipeline investment crop. KMP is an exquisitely managed master limited partnership that delivers all manner of energy across tens of thousands of miles of pipelines. Kinder owns and sells natural gas, as well as oil.
Kinder also doesn’t just own and move energy — it processes it, stores it and treats it, too. Such diversification allows one to sleep well at night.
And that’s why KMP’s 6.9% distribution yield doesn’t just make it one of the highest-dividend stocks in the market, but one of the most attractive.
Best Dividend Stocks for Retirement – RR Donnelley (RRD)
RRD Dividend Yield: 6.2%
Next, we have RR Donnelley & Sons (RRD), the company most famous for printing phone books. Of course, that’s not what RRD is really about anymore, though. It is a major player in business and communication services for both the private and government sectors. RRD now is involved with everything from digital content to mail sorting, data analytics … I think of it as a business support company.
RR Donnelley has successfully reinvented itself, so it generates more than $400 million of FCF annually, and pays out less than half of it … and yet still yields more than 6%.
Best Dividend Stocks for Retirement – UBS E-TRACS Wells Fargo Business Development Company ETN (BDCS)
BDCS Dividend Yield: 7.1%
So, this last one actually isn’t a stock. It’s still worth your attention, though.
UBS E-TRACS Wells Fargo Business Development Company ETN (BDCS) is an exchange-traded note that represents a basket of business development companies. BDCs invest in fast-growing middle-market companies that generally have solid cash flow, but need to take on additional debt to meet their growth demands. BDCs thus are able to charge interest in the 11% to 15% range, and must pay out 90% of their net income to investors.
This ETN’s basket of business development companies means that if a few of them are making bad investments (and even go under), you still should be plenty protected via diversification. BDCS is one of the highest-dividend stocks out there, yielding 7.1%.
As of this writing, Lawrence Meyers was long AHT. He is president of Asymmetrical Media Strategies, a crisis PR firm, and PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at firstname.lastname@example.org and follow his tweets at @ichabodscranium.