Retirement is more than just providing extra time for golf or the grandchildren. It’s also about investing with three specific objectives.
First, you need income. Dividend stocks are the cornerstone of retirement investing. Dividends provide income to fund or supplement retirement spending, and they provide the ability to carry your portfolio through challenging times in the general stock market.
Second, you need growth. While inflation has been subdued for some time, and I expect it to remain that way, growth in stock prices will over time provide the ability to deal with inflation. As we’re all expected to live longer, having a portfolio that’s expanding in value will provide for a richer life.
Third, you need to limit losses. This might seem harder to do. However, the key to limiting losses is to consistently review your holdings by asking yourself, “would you buy this stock again? Why?” If you hesitate, you should never hold and hope — sell and move on!
Right now, there are a handful of dividend stocks that should find a home in your retirement portfolio.
I’ll start with WP Carey (NYSE:WPC). WP Carey is a real estate investment trust (REIT) with a special focus on what is known as sale-leaseback transactions. The company buys real estate assets from major U.S. and global companies as well as the government and in turn leases them back to the sellers on a triple net lease basis. This means that the companies leasing the properties pay all upkeep, taxes and insurance.
WP Carey has a 99.7% occupancy rate and continues to expand its portfolio which is currently valued at $13.3 billion. The dividend had consistently been raised quarter after quarter providing a current yield of 6.18%. And while REITs have had a sell-off post the tax cut of last year, Since February of this year, the shares have delivered a return of 12.77% and over the past ten years has delivered an average annual return of 14.63%.
Next is Compass Diversified Holdings (NYSE:CODI). Compass is a holding company set up under the Investment Company Act of 1940. As such, it pays no corporate income tax and distributes the majority of its profits to shareholders.
The company buys entire companies or controlling interests in companies in high cash-generating businesses. Think of the early version of Berkshire Hathaway (BRK.B) and you’ll have an idea of Compass. It, in turn, works with managers to enhance the value of their companies and eventually cashes out by selling their investment. Dividends are high providing a current yield of 8.83%. And the company has consistently remained profitable even during the credit crisis of 207-2008.
Then there’s Enterprise Products Partners (NYSE:EPD). This is a petroleum pipeline company with a vast network around the U.S. It is a toll taker of the petroleum market that is less vulnerable to oil and gas prices. Revenues continue to advance with the trailing year seeing gains of 27%. And the margins are fat, with operating profits running at 13.4%.
The dividend is ample and rising with a current yield of 6.06%. And the company has generated an average annual total return for the past ten years running at 12.59%.
One area to avoid and even sell is traditionally been a safe sector of the stock market for dividends and retirement investment. Consumer goods companies tend to remain positive during good and challenging economic times. The idea is that consumers will still spend on processed foods as well as soap and household staples through thick and thin.
But the challenge now is that consumer tastes have changed. Processed foods and factory-made food aren’t as appealing as other alternatives. And there are better and cheaper alternatives to branded names for soap and paper products.
As a result, the consumer goods companies are largely in trouble. Over the past year, the S&P Consumer Staples Index is down in price by 11.12%, while the S&P 500 is up some 13.15%.
And the one company to sell right now is Kraft Heinz (NYSE:KHC). It is down over 38.38%. The company’s sales are sharply down. And management continues to frustrate investors with a lack of a turnaround plan.
The dividend is in jeopardy with a trailing 12-month payout rate of 68%. And the debts of the company are also in jeopardy of squeezing cash further. This should be sold and avoided for retirement portfolios. And you should also review others in the consumer products segment as many are also in similar risk conditions.
Neil George is the editor for Profitable Investing and by company policy does not have any current holdings in the securities mentioned above.
