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.
> 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.
> 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.
> Dividend Yield:
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.
> 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.
> 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.
> 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.