Best Dividend Stocks to Own for Retirement
Saving for retirement is not easy. A report last year showed that, in the U.S., people between the ages of 65 and 69 were more likely to be working than teenagers were, except during the summer months. It didn’t help that interest rates were kept artificially low for the most part since the Great Recession of 2008. How can people save for retirement? Well, solid dividend stocks have been helping investors achieve their financial goals for decades. In this article, we are going to take a look at five of the best retirement stocks to consider for 2017 and beyond.
Before going into the details, keep in mind that, even though the focus here is retirement stocks, investors will most likely have their own unique financial goals and risk profiles. A portfolio tailored to a 25-year-old who has just started saving for retirement is probably going to be a bit different than the portfolio of a 55-year-old. Since we are Income Investors, I’m going to go with a more conservative approach. In this list of top retirement stocks, the focus will be on companies that can help investors generate safe retirement income. In other words, we are going to look at dividend-paying stocks.
Investors today don’t seem to rely on dividends as much as before, and this is not exactly their fault. The historical average dividend yield of S&P 500 companies is 4.38%. Right now, the average yield is 1.95%. Sure, there are still stocks with ultra-high yields, but should a retirement investor risk their savings on a stock with a 20% dividend yield in today’s market? (Source: “S&P 500 Dividend Yield,” Multpl.com, last accessed April 27, 2017.)
The types of stocks that are suitable for someone saving for retirement are those that have dividend stability and durability. A company may be doing great right now, and is distributing some of its profits to shareholders. But, if their business is not stable, i.e., there is a lot of fluctuations in its revenue and earnings, the company may not be able to always pay the current amount. For someone who wants their portfolio to generate a steady stream of income, it’s important to invest in companies that can provide stability in their dividends.
Furthermore, there are many factors that can affect a company’s performance. There will always be short-term uncertainties, so the question is: if the company just had a bad year for whatever reason, will it be able to recover? As investors with long-term horizons, it’s of the utmost importance to find companies with durable competitive advantage, so that, if they took a financial beating in one year, they can still make a comeback the next.
Now, let’s take a look at the five best retirement stocks to consider for 2017.
List of Top Retirement Stocks for 2017
| Company Name | Ticker Symbol | Dividend Yield |
| Realty Income Corp | O | 4.26% |
| Johnson & Johnson | JNJ | 2.59% |
| CVS Health Corp | CVS | 2.42% |
| Verizon Communications Inc. | VZ | 4.94% |
| Enviva Partners LP | EVA | 7.15% |
1. Realty Income Corp
Collecting rental income is one of the ways to save for retirement. However, finding tenants and chasing late payments are far from being fun experiences. Fortunately, there are companies that allow investors to collect rental income without the hassle of being a landlord. These are real estate investment trusts, or REITs.
Among the approximately 1,100 REITs in the U.S., one name stands out: Realty Income Corp (NYSE:O).
Founded in 1969, Realty Income Corp was created to provide investors with a growing stream of monthly dividends. The company went public in 1994 and is now a member of the S&P 500 Index.
One of the most important things when it comes to real estate investing is having a diversified portfolio. The good news is that Realty Income’s portfolio is well diversified. It consists of over 4,900 commercial properties leased to 250 commercial tenants coming from 47 different industries. The properties are located in 49 states and Puerto Rico.
Realty Income brands itself as “The Monthly Dividend Company,” and rightfully deserves that title. Since its founding in 1969, the company has made 561 consecutive monthly dividend payments. Moreover, Realty Income has been growing its payout for 78 consecutive quarters. Since the company’s initial public offering (IPO) in 1994, the company has delivered a compound average annual total return of 16.9%. (Source: “Dividend Payment Information,” Realty Income Corp, last accessed April 27, 2017.)
Right now, Realty Income pays $0.211 per share on a monthly basis, translating to an annual dividend yield of 4.26%.
The company also has solid financials to support those dividend hikes. In the first quarter of 2017, Realty Income’s revenue increased 11.6% year-over-year to $298.0 million. Adjusted funds from operations (AFFO) per share grew 8.6% year-over-year to $0.76. Its portfolio’s economic occupancy, which is occupancy as measured by rental revenue, was a solid 99.0% by the end of the first quarter, with a weighted average remaining lease term of 9.7 years. (Source: “Realty Income Announces Operating Results For First Quarter 2017,” Realty Income Corp, April 25, 2017.)
Combining a decent yield, monthly distributions, and a rock-solid business model, Realty Income is one of the best stocks to consider for retirement investors.
2. Johnson & Johnson
Readers who follow my column would know that Johnson & Johnson (NYSE:JNJ) is one of my favorite dividend stocks. Its 2.59% yield may not seem like much but, when it comes to dividend safety and durability, few companies in the world can match that of Johnson & Johnson.
Johnson & Johnson is a multinational healthcare company that operates through three segments: “Consumer,” “Pharmaceutical,” and “Medical Devices.” The company has more than 250 operating companies selling products throughout the world. More than one billion people use Johnson & Johnson’s products on a daily basis.
The most impressive part about JNJ stock is the company’s ability to grow its dividends through thick and thin. Johnson & Johnson is a “dividend king,” the company having increased its dividend in each of the past 54 years. (Source: “Dividend History,” Johnson & Johnson, last accessed April 27, 2017.)
But this shouldn’t really come as a surprise; consumer goods and pharmaceuticals are essentially recession-proof businesses. With dominant presence in many of its market segments, Johnson & Johnson’s success could continue well into the future. It is a top dividend stock to consider for a retirement portfolio.
3. CVS Health Corp
Like Johnson & Johnson, CVS Health Corp (NYSE:CVS) is also in the healthcare business. However, the company is quite different from JNJ in that its main business is retail pharmacy.
Headquartered in Woonsocket, Rhode Island, CVS Health is the largest pharmacy in the U.S., based on prescription revenue. The company has more than 9,700 retail locations in 49 states, the District of Columbia, Puerto Rico, and Brazil. It also has more than 1,100 “MinuteClinic” locations in 33 states and Washington, D.C. In addition, CVS Health is a pharmacy benefit manager (PBM) serving nearly 90 million plan members.
Operating pharmacy chains may not sound that exciting, but it is one of the most solid types of businesses. Think about it: during a recession, consumers may not be buying as many new cars as when things are good, but when people need their medication, they would still visit the pharmacy.
The company’s rock-solid business allows it to raise its dividends, even when everything else is deep in the doldrums. Over the past 10 years—including the Great Recession—CVS Health’s quarterly dividend rate has increased by more than ninefold. The company is currently yielding 2.42%. (Source: “Dividend History,” CVS Health Corp, last accessed April 27, 2017.)
4. Verizon Communications Inc.
When you look at companies that have the ability to pay a dividend indefinitely, you find that they almost always have some sort of durable competitive advantage. Competitive advantage can come from many different things, such as a strong brand, intellectual property, location, or simply high barriers to entry. Verizon Communications Inc. (NYSE:VZ) is a company that has been reaping rewards from an industry known for having very high barriers to entry.
Headquartered in New York City, Verizon is a multinational telecommunications conglomerate. The company was founded as Bell Atlantic, and changed to its current name after the merger with GTE. You might have read recent news about Verizon’s many different ventures, but the company remains a wireless carrier, for the most part. In the first quarter of 2017, Verizon’s wireless segment was responsible for generating over 70% of the company’s total revenue. (Source: “Verizon 1Q results highlighted by strong wireless customer loyalty, network investment and growth in new markets,” Verizon Communications Inc, April 20, 2017.)
Being a wireless carrier is a profitable business, but not everyone can do it. If a company wants to enter the industry, it would have to build a large number of transmission towers and bid for the expensive wireless spectrum, and that’s if it gets the regulatory approval to do so. Verizon already has the infrastructure in place. It has the largest 4G LTE network in the country, covering over 2.4 million square miles.
High barriers to entry have resulted in an industry with just four players: Verizon, AT&T Inc. (NYSE:T), Sprint Corp (NYSE:S), and T-Mobile US Inc (NASDAQ:TMUS). Verizon has been the number-one player in the industry—based on total wireless subscriptions—for quite some time. It had a 35% market share in the fourth quarter of 2016. (Source: “Market share of wireless subscriptions held by carriers in the U.S. from 1st quarter 2011 to 4th quarter 2016,” Statista, last accessed April 27, 2017.)
Limited competition has translated to higher cell phone bills for consumers. But, for companies in the industry, it means sizable profits year after year.
Verizon also pays handsome dividends. With a quarterly dividend rate of $0.5775 per share, the company is currently yielding 4.94%.
5. Enviva Partners LP
Some say that there is a trade-off between current return and growth potential. Is there a way to have both? Well, investors may want to check out Enviva Partners LP (NYSE:EVA).
Enviva Partners is a master limited partnership (MLP), which are usually involved in the midstream oil and gas business. But Enviva is quite different. It engages in a business that few people have heard about: processing wood chips into wood pellets. What’s the point of turning wood chips into wood pellets? Well, wood pellets are a type of biofuel and can be used to replace coal in power generation.
Enviva was founded in 2004 and has become the largest producer of wood pellets in the world. The company owns and operates six plants in the southeastern U.S., with annual production capacity of nearly three million metric tons. The majority of Enviva’s output is exported to power plants in the U.K. and Europe that were previously fueled by coal. Its business is secured by long-term take-or-pay agreements with creditworthy customers.
What makes Enviva stand out is its distributions. The partnership currently pays quarterly distributions of $0.5350 per common unit, which translates to an annualized yield of 7.15%.
Enviva’s distribution track record may not seem that long, given that it completed its IPO very recently (May 2015). However, since Enviva became a publicly traded MLP, it has increased its distribution every single quarter. (Source: “Enviva Partners, LP Announces Sixth Consecutive Distribution Increase,” Enviva Partners LP, February 1, 2017.)