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3 Dividend Stocks to Own In Retirement

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Guest Contributor; Gaurav Sharma

3 Top Dividend Stocks for Retirement

If there is and one priority for a retiree investor, it is income.  This can be achieved by owning the best dividend stocks within your investment portfolio.  Dividend stock investing actually has two potential benefits:

  1. An opportunity for capital appreciation.
  2. A steady or increasing cash flow.

A dividend stock investor deploys capital into companies with juicy dividend payments. Depending upon when the dividends are paid, you earn regular cash payments deposited into your brokerage account. After purchasing the stock, there’s no additional work, making dividend investing perfect for retirees.

The advantage of owning a dividend-paying stock is that there is no need to sell the shares in order to receive the dividend. of course, you can’t avoid the market or company risk which means the company stock value might go down, as well as up.

Dividend stocks for retirees with steady income stream and growing cash flow.

Although any investment has risk, this article focuses on high-quality dividend-paying company stocks that are likely to preserve your investment capital. Although, with all investing, there are no guarantees that the stock or company won’t, at some point, drop in value or cut its dividend.

Here’s Why Dividend Investing Makes Sense

Increases in costs of necessities, such as medical bills, food, travel, and housing, are concerns for retirees. One way to battle against these rising costs is by looking at investments that provide a growing payout like–yup, you guessed it–dividend growth stocks. Dividend growth stocks increase their dividends on a regular basis–as their name implies–because of the growth in revenue and earnings.

Stock investing is one of the best hedges against future inflation. Since inflation can eat away at your savings and investments, a company with a history of growing dividends can offset the ravages of inflation.  

Next, take a look at three dividend growth stocks that are worth your consideration.

1. Colgate-Palmolive Company

Colgate-Palmolive Company (NYSE:CL) is a “dividend king,” having increased its dividend annually for over 50 straight years–53, to be exact.

If you’re patient, the increasing dividend yield will give you a nice long term payout. The dividend yield is calculated by dividing the annual dividend payment by the average purchase price. The yield increases as the dividend does.

CL stock also offers preservation of capital, as your nest egg likely won’t see much volatility. This is evidenced by the daily price movement of the stock. If the market saw a negative return of one percent then, on average, CL stock would only see a negative return of 0.75%. It may not seem like much, but it does add up.

The reason why CL stock offers both preservation of capital and a growing dividend is that revenue is holding steady. That’s because Colgate-Palmolive’s products include consumer staples like toothpaste and soap–items people will buy no matter what state the economy is in.

Investing in REITs is another path to high dividend investments. Check out the “Pros and Cons of REIT Investing”

2. PepsiCo, Inc.

PepsiCo, Inc. (NYSE:PEP) needs no introduction because of its powerful branding. PEP stock is great for a retirement portfolio for three reasons.

First, PEP stock pays out a quarterly dividend in January, March, June, and September. The dividend is reviewed every May to determine if present revenue can support an increase–and for 44 years, it has.

Another reason for the consistent dividend hikes is that PepsiCo’s earnings are protected from inflation. This simply means that costs are passed to customers, meaning savings and higher revenue for the firm. Also the margins of the business typically aren’t hurt because costs from inflation are passed through to the consumer.

Lastly, the company enjoys global diversification. PepsiCo has operations in more than 200 counties around the world, providing exposure to locations such as China and India, not to mention North America and other mature markets.

PepsiCo’s business model is very easy to understand. Not only will there be a steady stream of income, but PEP stock offers peace of mind based on its track record.

3. Target Corporation

Target Corporation (NYSE:TGT) is on this list of the best dividend stocks for retirement because of its combination of income and growth.

Keep in mind that a dividend payment is not mandatory; the a business decision by the company to pay out a portion of it’s profits to shareholders. This is important to understand because when a company has financial trouble, the dividend is often the first thing to go. This is why with any dividend paying stock, including Target, investors want the dividend payment to be covered now and going forward.

Target’s dividend has remained very steady, increasing for 49 straight years thanks to consistent growth in revenue. Also, no more than 50% of each dollar of earnings has been paid out to investors, the rest going towards the company itself.

Target is a well-known brand thanks to its physical stores, but in recent years, the company has been investing in its e-commerce platform. Target’s e-commerce business has experienced double-digit growth, which is higher than that of its physical stores. And since digital sales still account for less than five percent of total sales, there is room for investors to benefit from this growth driver. Plus, since e-commerce is cheaper to manage than brick-and-mortar locations, margins should see improvement over time.

The share price growth is likely to be reflected in the future share price, although recent earnings and share price have been lackluster. This recent earnings downturn and depressed price has boosted Target’s yield to a juicy 4.62% as of July 20, 2017. The other contributor to the total return is of course, the dividend, which should increase in the future as well.

[Barbara’s comment; I’ve owned Target in the past and am considering buying in due to the juicy current dividend, history of rising dividend payments and low PE ratio. Of course, always do your own research before making any investment.]

So, if you’re a senior, looking for an income stream, consider investing in dividend paying stocks. And if you’re uncomfortable buying individual stocks, consider a dividend-paying mutual fund or ETF such as Vanguard Dividend Appreciation (VIG). 

Gaurav Sharma is a security analyst for Income Investors. He advocates for commonsense, buy-and-hold investing. You can find his daily investment ideas and commentary at IncomeInvestors.com.

*This is not a recommendation to buy a specific stock. For investment advice, see your own financial professional.

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