For those investors in retirement, it all comes down to income. How can you convert your lifetime of savings into a steady stream of paychecks? There are plenty of ways to do that. But one of the best continues to be dividend stocks. After all, dividend stocks generally offer higher yields than bonds and give you the ability to see your income rise through increasing dividend payouts as well as grow, thanks to capital appreciation. Bonds, CDs, and other traditional fixed-income products can’t do that.
The only problem is, not all dividend stocks are worthy for retirees.
Those in retirement can’t afford to see their payouts get cut or see their capital go up in flames. There’s simply not enough time to recoup losses or balance out volatility. To this end, it takes a certain variety of dividend stocks to get you through your golden years. A focus on quality is key.
Which dividend stocks make the grade for retirement? Here are five dividends stocks that are perfect for retirement portfolios.
Dividend Yield: 2.43%
Selling screwdrivers, wrenches and other hand tools may not seem that exciting, but this niche has helped make Snap-On Incorporated (NYSE:SNA) one of the best dividend stocks around.
SNA manufactures a variety of tools, equipment, and repair information systems for various industrial markets. Many professional mechanics and assembly workers swear by Snap-On’s better-made products. And with a simple socket wrench set costing north of $300, SNA isn’t exactly going after DIY and weekend warriors here. You need high-performance when you’re fixing a bullet train or repairing a wind turbine.
This focus on the industrial market has widely insulated SNA from the whims of the consumer segment. Because of this, SNA has paid dividends without interruptions or reductions since 1939. Its last increase was a strong 15.85% jump.
Part of that jump comes from the reduction in corporate taxes. The other continues to be Snap-On’s moves into higher-margin tech products. Modern machinery is chock-full of computers and sensors. SNA is quickly becoming the standard provider for computer-based diagnostics equipment. This has provided a supercharger to its earnings in recent years. EPS surged 12.6% year-over-year in 2018.
All in all, Snap-On’s continued leadership position in its niche market continues to pay benefits. That makes it one of the best dividend stocks for retirees.
Becton Dickinson and Co (BDX)
Dividend Yield: 1.25%
Admittingly, the headline yield on Becton Dickinson and Co (NYSE:BDX) isn’t much to write home about. BDX’s current yield of 1.25% is about what you can earn from a savings account these days. However, the story at the medical device maker is one of payout growth. This why retirees should include BDX in their portfolio of dividend stocks.
BDX is one of the world’s largest producers of needles, syringes, and other sharps-related devices. This catalog of products spans everything from “basics” like insulin needles and catheters to more advanced regional anesthesia and drug delivery products. The beauty is that the bulk of these items are designed to be single use. That means your doctor and hospital has to come back every month to get more of them. Becton’s integration of rival Bard has only expanded on this catalog as well.
This, plus moves into life science products and more high-tech drug delivery medical devices, has continued to make BDX a cash flow machine. The firm has used that cash flow to reward shareholders by paying down the debt used to buy Bard as well as increase its dividend and conduct buybacks. Over the last decade, Becton has managed to double its dividend based on its strong cash flows. Given its strengths, there’s a good chance that BDX will keep that streak going.
For retirees, BDX stock offers a chance to grow their income over the long haul.
Home Depot Inc. (HD)
Dividend Yield: 2.66%
It’s no secret that retail has been a blood bath. Online shopping has continued to hit many traditional brick and mortar retailers hard. Empty storefronts and dead shopping malls are quickly becoming the norm. But just don’t tell that to Home Depot (NYSE:HD). The home improvement retailer is killing it and has proved that its a top dividend stock. Retirees should take notice.
Much of HD’s recent success comes from its moves into omnichannel retailing. Consumers these days want to buy products when and how they want them. And as they want them in-store, online, via mobile apps, etc., Home Depot seems to have cracked the code. Spending on technology and beefing-up its operations has worked and customers keep hitting up HD for their home improvement needs. Sales grew nearly 11% last quarter to reach a whopping $26.5 billion based on its omnichannel moves.
HD has clearly gotten the message about the changing face of retail.
Keeping that going into the future and helping pad its dividend is that HD has also figured out how to attract millennial and younger customers. Thanks to new classes, videos, and DIY help, Home Depot has continued to attract the customers of tomorrow. That’s a demographic that many other retailers are struggling to court.
With its strong growth, HD recently was able to increase its dividend by 32% and conduct more than $15 billion in buybacks.
Microsoft Corporation (MSFT)
Dividend Yield: 1.25%
Microsoft (NASDAQ:MSFT) is proving that old school tech can still be a fertile ground for finding dividend stocks — especially those for retirees. The key has been CEO’s Satya Nadella’s vision to transform Mr. Softy into a software-as-a-service (SaaS) company and reap plenty of recurring/subscription revenues.
Today, the cloud rules the roost at MSFT. Microsoft’s Azure and Dynamics 365 platforms are quickly becoming the standards for many enterprise customers. Growing by double-digits, MSFT has been able to reap plenty of earnings/cash flows from its new cloud model. Better still, is that MSFT has been able to turn that cloud model toward regular Joes as well. Office 365, as well as its Xbox gaming/entertainment units, are also seeing plenty of growth. Total revenues for MSFT jumped by 12% last quarter on the strength of its cloud operations.
All of this continues to translate into plenty of profits and growing cash balance.
And MSFT continues to share those profits with investors. Since 2010, the tech firm has managed to grow its payout by over 253%. That’s very impressive. And given its huge cash balance, strong cash flows and high margins, there’s a good chance that Microsoft will keep that streak going. For retirees, that makes MSFT one of the best dividend stocks to own for the long haul.
Realty Income (O)
Dividend Yield: 3.80%
When your corporate tag line is the “Monthly Dividend Company,” there’s a lot of pressure to keep to live up to that promise. Luckily for Realty Income (NYSE:O) it has been able to keep that promise for more than 584 consecutive months.
That steadfastness of payouts comes from Realty Income’s business model. O is one of the largest owners of freestanding real estate in the country — with more than 5.700 different properties under its wing. Freestanding real state includes everything from convenience stores and restaurants to movie theaters, and automotive parts/services centers. It’s the standard fare that dots our suburban landscape. With nearly 500 different tenants and its huge swath of property, O provides unmatched diversification.
As if O couldn’t get any better, the vast bulk of these properties are so-called triple-net leased. This means the tenants are responsible for taxes, maintenance and other costs related to the property. This allows Realty Income to keep more of its rent checks.
Well, not keep. O has been rewarding shareholders for decades. Its latest increase represents its 101st monthly jump to its payout. This follows an increase back in January. A monthly check that keeps growing? If that’s not the perfect stock for a retiree, then I don’t know what is.
With a 3.8% yield, conservative balance sheet and monthly payouts, Realty Income could be a perfect dividend stock for a retirement portfolio.
Disclosure: At the time of writing, Aaron Levitt did not hold a position in any of the stocks mentioned.