It may not be a secret that investors love dividends, but many retirees absolutely have no choice but to invest in strong dividend stocks that have a history of stable or rising dividends. The waves of baby boomers have already started to retire, and those who have not retired will be retiring by the millions each year for the next decade.
In a world where interest rates are so low and uncertainty seems to be the norm, baby boomers need to look for stable dividend stocks that can compete with the current income of longer-term Treasury notes and bonds and for businesses that should grow to offer some capital appreciation over time as well.
24/7 Wall St. has identified many dividend issues and has addressed many retirement issues over the years. The numbers about retirement are scary for most Americans. If they are not in a pension plan, their Social Security payments each month in retirement will not make the golden years all that golden. The average 401(k) and IRA balance is also too small to fill the gap for most households, so these steady dividend payers are going to have to act as the bridge.
As of 2019, the average Social Security payment to a retiree was $1,461 per month, and that is expected to rise to about $1,503 per month in 2020. Many retirees may collect more than $2,000 each month, but the fixed income markets now do not offer enough yield to help retirees get extra income. The historically safe Treasury notes and bonds only offered an annualized yield of about 1.7% for 10 years and 2.1% for 30 years on last look, seemingly with very limited price appreciation potential.
We have compiled lists of stocks that investors can look at during most trading days and not worry about the state of their dividend ahead. Most of these companies have been dividend growers as well, so retirees and those nearing retirement should have at least some comfort when considering potential appreciation in the share price and the prospects of higher dividend payouts.
Most of these companies compete with or exceed the yield of the 30-year Treasury bond, but some are closer to that of the 10-year bond. In an effort to keep risks in mind, we have included the strengths of each company along with some of the risks and concerns so that investors get a big picture, rather than just the upside.
Here are 20 companies listed in alphabetical order, with another 20 companies coming soon, that should offer investors who are retired or near retirement some added income to help make their golden years safe and sound.
1. AbbVie
> Dividend Yield: 5.8%
Strengths: AbbVie Inc. (NYSE: ABBV) is best known for the mega-blockbuster drug Humira (the best seller in the world), and even though patent issues are a concern, it has other products and has many development partnerships with biotech and pharmaceutical giants. Its dividend is so high because its shares have pulled back so much, but analysts on Wall Street are still calling for earnings growth ahead. AbbVie is also diversifying, with its pending acquisition of Allergan.
Risks/Concerns: Drug price risks are front and center for drug companies today, and that’s going to be true under a Republican or a Democrat administration. Its valuation is low because Humira is facing European competition, and biosimilars will start selling in the United States in 2023. As it takes Allergan under its corporate umbrella, it is possible that the combined companies will face integration friction and may have some identity issues during the transitionary period.
2. Air Products and Chemicals
> Dividend Yield: 2.2%
Strengths: Air Products and Chemicals Inc. (NYSE: APD) has been a leader in the field of specialty and atmospheric gases to industries back to its founding before World War II. It sells to industries of all sorts and sizes, some cyclical and some steady. As of 2019, it also has raised its dividend 37 straight years and has a reasonable payout ratio that should be sustainable for years to come.
Risks/Concerns: After a big gain earlier in 2019, the company has seen its shares run into a wall, and many analysts have lowered their formal ratings. Despite its solid position as one of the few industry leaders, many companies offer niche sales that can act as competition over time.
3. AEP
> Dividend Yield: 2.9%
Strengths: American Electric Power Co. Inc. (NYSE: AEP) is a top electric utility in America with over 100 years of operations serving more than 5 million regulated customers, and its prime footprints are in many of the central states. It uses every energy source available, is very shareholder friendly and has a history of leading a “protect my dividend” effort that investors should praise.
Risks/Concerns: AEP still has more coal-fired electric plant generation that some regulators and politicians would prefer, and that is going to take time to remedy. Utilities face a potential regulatory onslaught if the climate change and global warming cases become the focal point of political platforms.
4. AIG
> Dividend Yield: 2.4%
Strengths: American International Group Inc. (NYSE: AIG) remains one of the top insurers in the world, and it is no longer under such strict regulatory scrutiny as it was after the Great Recession. It insures millions of individuals, residences, lives and businesses, and it is barely valued at 10 times earnings and has a low earnings payout ratio for its dividend.
Risks/Concerns: Many investors hold AIG in contempt for the endless number of over-the-counter derivatives from before the Great Recession. Some investors worry that ever-lower interest rates will act to cap its profitability on long-term obligations and life insurance.
5. American Water Works
> Dividend Yield: 1.6%
Strengths: American Water Works Co. Inc. (NYSE: AWK) is one of the most defensive names for investors worried about a recession. You can’t replace your water utility if you cannot dig your own well, and it serves millions of customers in most states and is the largest of the publicly traded water utilities. It also has vowed to keep raising its dividend by reasonable metrics for the years ahead as earnings rise.
Risks/Concerns: All water stocks are expensive on a price-to-earnings basis, and American Water Works is no exception. It has made bolt-on and small acquisitions here and there, but it’s hard for a water utility to go find new and untapped growth markets. Infrastructure spending is also expensive, but the need for better infrastructure is growing.
6. Aimco
> Dividend Yield: 2.9%
Strengths: Apartment Investment and Management Co. (NYSE: AIV) is a top apartment owning and management real estate investment trust (REIT) with living centers in more than 130 communities in 17 states. It has a strong team behind it, and it targets dense population areas with attractive properties.
Risks/Concerns: As with all apartments and real estate plays, there is a cyclical nature of its business and apartment rents are competitive, even if they are expensive. The Great Recession was brutal on the shares, before the great recovery lifted them back up.
7. Aqua America
> Dividend Yield: 2.1%
Strengths: After making an acquisition of Peoples in Pennsylvania, this company diversified its utility operations from just water into water and natural gas. Its location in Pennsylvania made that an easy strategic fit. Water investors are still more than willing to invest in the company, and it dates back to before 1900, long before its more modernized name change in 2004. Its 7% dividend hike in 2019 was said to be the 29th in 28 years.
Risks/Concerns: By acquiring a natural gas utility, Aqua America Inc. (NYSE: WTR) has changed how investors will view the company. This may be a path for other companies to follow, or it may create operational issues wherein the sum is not worth as much as the parts. Model-changing mergers also can come with risks that may not be fully recognized for years.
8. ADM
> Dividend Yield: 3.7%
Strengths: As a top agricultural commodities player in America, Archer Daniels Midland Co. (NYSE: ADM) reaches into food, oils, ingredients, energy, chemicals and industries of all sorts. It has over 100 years of operations, and its shares are still at a sizable discount from its peak.
Risks/Concerns: ADM is involved in so many operations that it’s hard to pinpoint ahead of time from where the next problem (and the one after) that will come. The company also has had a hard time growing revenues in recent years, and Wall Street expects slow growth ahead. While stock buybacks are not a net-negative for shareholders, the company’s 100 million share buyback authorization (about 18% of its outstanding shares) may compete against big dividend hikes or potential growth-oriented acquisitions.
9. AT&T
> Dividend Yield: 5.4%
Strengths: This wireless giant is in a virtual duopoly with Verizon and is expected to maintain its dominance even if Sprint and T-Mobile merge. AT&T Inc. (NYSE: T) has diversified its revenue base by acquiring DirecTV and Time Warner to ensure multiple income streams for the coming decade as 5G rolls out. It has one of the highest dividends of its class, with an acceptable payout ratio.
Risks/Concerns: AT&T has taken on massive debt to help fund and bolster the acquisitions of Time Warner and DirecTV; wireless markets are deemed as mature; and 5G buildout spending expected to remain high for years. It now has Elliott Management targeting it as an activist, and the conglomerate model of telecom, media and connectivity into the home makes it expensive to operate at a time when the 5G buildout is already going to cost wireless carriers billions per year.
10. Bank of America
> Dividend Yield: 2.6%
Strengths: Bank of America Corp. (NYSE: BAC) is a slow and steady grower at this stage, now that it’s in the top four banks by assets in America. It has Warren Buffett in its corner, as its largest single shareholder is Berkshire Hathaway, with a huge investment in the company. The bank is growing its dividends again, and its businesses of bank deposits, lending, credit cards and mortgages are spread out, along with the asset management and investment operations of Merrill Lynch. Its core earnings remain healthy.
Risks/Concerns: Banks face lower net interest margins now that interest rates have come down and since the yield curve is so flat. Bank of America also has massive deposits and the Merrill Lynch investment advisory unit that could come under focus if politicians deliver on their threats to break up the big banks. The Federal Reserve also has allowed bank dividends to rise enough that some investors might want them to keep some powder dry so they don’t have a risk of having to lower their dividends if the economy keeps slipping lower.
11. Cincinnati Financial
> Dividend Yield: 2.0%
Strengths: This is a leader in commercial lines of insurance, and it is also well known in life insurance, personal liability insurance and investments. Cincinnati Financial Corp. (NASDAQ: CINF) has raised its dividends for 59 consecutive years, and it maintains very healthy payout ratios that allow a big cushion.
Risks/Concerns: The low interest rate environment plays against companies being able to offer long-term life insurance, and the financial crisis still took out more than half the value of this company from its 2007 peak through the late-2008 trough. Its strong rally from the start of 2018 might also make this one more susceptible to profit-taking at the next slowdown.
12. Coca-Cola
> Dividend Yield: 3.0%
Strengths: As of 2019, Coca-Cola Co. (NYSE: KO) has raised its dividend for 57 consecutive years. The company has been diversifying away from its core Coca-Cola and sugar-water drinks into sports beverages, coffee and tea. Its shares finally have broken above that $45 to $50 barrier that had been in place. The business is also deemed to be a defensive name that can withstand any sort of economic slowdown, even if colas and other beverages may slow down in a recession.
Risks/Concerns: Coca-Cola has had to overcome that image of just selling sugar-water beverages that were bad for you. Buffett may drink a Coke per day and may be the largest shareholder via Berkshire Hathaway, but many groups still view Coca-Cola as one of the few top targets in the war on diabetes and obesity.
13. Delta Air Lines
> Dividend Yield: 3.0%
Strengths: Delta Air Lines Inc. (NYSE: DAL) has the highest dividend of the major legacy air carriers, and the company pays out 20% to 25% of its earnings as dividends. Airlines seem to have better pricing power over add-on fees to ticket prices, and there are fewer low-cost and money-losing competitors that can undercut a carrier these days. While gate-costs at airports are high, that also acts as a buffer to keep low-cost and predatory competitors at bay in the major markets.
Risks/Concerns: Delta’s debt has risen in recent years, and the airline remains susceptible to the price of jet fuel. The entire airline industry remains very economically sensitive due to how cyclical airline travel is. That said, having the highest yield and a desire not to cut its dividend makes it stand out among its peers.
14. Dover
> Dividend Yield: 2.1%
Strengths: Dover Corp. (NYSE: DOV) is one of the boring industrial companies that is often overlooked as an American leader, but it makes engineered systems, fluids and products around refrigeration and food equipment. It is fairly valued at 16 times expected earnings and is expected to show low-single-digit revenue growth ahead. Dover is also in the club of stocks that has raised its dividend over 50 consecutive years.
Risks/Concerns: As a boring industrial player in America, many investors overlook the company due to not having an easy brand identity. By spanning multiple industries for equipment and components, pumps, conveyors and other items used by manufacturers, most investors do not know much about it or follow it very much.
15. 3M
> Dividend Yield: 3.8%
Strengths: 3M Co. (NYSE: MMM) may have fallen out of favor, but the conglomerate has a long operating history and has diversified operations in safety and industrial products and transportation, electronics, health care and consumer products. Its stock sell-off also has it valued at less than 16 times 2020 expected earnings, and it still has plenty of earnings coverage to keep up. With 3M’s dividend hike of 6% in February 2019, it has now hiked that dividend for 61 consecutive years, and it has paid dividends for more than 100 consecutive years.
Risks/Concerns: 3M has fallen out of favor after a poor 2018 and 2019 for its stock has taken away more than one-third of its value from the peak. While the company has plenty of operations for earnings, it has run into environmental issues that are not the norm, and it has had a hard time getting any major earnings recovery going.
16. PepsiCo
> Dividend Yield: 2.8%
Strengths: PepsiCo Inc. (NASDAQ: PEP) was diversifying away from just sugar-water beverages long before soft drinks and so-called diet sodas were targeted as public health hazards. It has Frito-Lay and many snack foods that it sells, as well as many other beverage brands in water, tea, juice and the like that it can survive and thrive in almost any economic cycle. As of 2019, PepsiCo had raised its dividend for 47 consecutive years.
Risks/Concerns: PepsiCo has found it difficult to find new avenues of growth in recent years, and the beverage industry is cutthroat and competitive, even if this company is a leader. The company also comes with a substantial premium valuation of 25 times current year earnings.
17. Procter & Gamble
> Dividend Yield: 2.0%
Strengths: Procter & Gamble Co. (NYSE: PG) is the top maker of consumer products around. It is larger than its next five consumer products and personal care companies combined. It has a long 63-year consecutive year streak of hiking its dividends, and if one company can handle competition it is P&G. It has so many brands and units that it can add to or slice off as it sees fit, creating opportunity and adding potential value.
Risks/Concerns: The consumer products business is very competitive, and the company has been in the midst of right-sizing its portfolio. Its 30% share price gain in the first three-quarters of 2019 might also scare away some investors who feel the premium for buying into the defensive consumer products giant is now just too great.
18. Quest Diagnostics
> Dividend Yield: 2.1%
Strengths: Quest Diagnostics Inc. (NYSE: DGX) is an absolute leader in the field of medical testing. It has centers tied into every major metro area and then some, and it is tied in with all major insurers and health care providers for those tests. Even in a nationalized move in health, this likely remains outside of the scope for some time. Analysts also still see no serious end to its slow and steady earnings and revenue growth at this time.
Risks/Concerns: Having any toe in health care may make a company’s pricing come under focus one day. Medicare reimbursement risks are not exactly a new issue to worry about, and there is always the risk that one day a company with the same dream of Theranos might actually succeed or be able to disrupt the business model.
24/7 Wall St.19. Simon Property
> Dividend Yield: 5.8%
Strengths: This is a tier-1 mall and mixed-use property owner and operator, with many top locations for shopping and entertainment. Simon Property Group Inc. (NYSE: SPG) is well run, and its malls can be diversified in a way that may help mitigate the retail apocalypse and online retail threat brought by Amazon and others. Its stock is also down enough from its highs that some investors will feel the risks in the years ahead can keep the company interesting.
Risks/Concerns: Because it is in the mall space, some investors feel the pressure from Amazon and other omnichannel operators will make it less desirable for tenants to be mall-based in the years ahead. Many retailers and store destinations are shutting down their weaker locations to stay lean, while many others have simply died off or are at risk of doing so. The next recession also likely will be brutal on its tenants, and replacing the lost revenue may be difficult.
20. Verizon
> Dividend Yield: 4.1%
Strengths: Verizon Communications Inc. (NYSE: VZ) has chosen to remain more of a pure-bred carrier rather than making massive diversification acquisitions other than its purchases of Yahoo and AOL. This keeps Verizon less leveraged with new debt and should allow it to more easily manage its 5G buildout expenses ahead.
Risks/Concerns: The climate is mixed for wireless operators, and the never-ending Sprint-T/Mobile merger remains an unknown issue ahead. Verizon will have to fund a 5G buildout for years to come, and it will cost billions of dollars each year.
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