If your investment goal is to build a solid cash flow for your retirement, it is a good idea to have some high-quality dividend stocks in your portfolio.
In the dividend-paying segment of the market, one strategy worth focusing on is to buy what some traders may consider boring old economy companies, such as consumer staples, major infrastructure providers and banks and insurance companies.
Owning these stocks also makes economic sense, especially for fixed income investors looking to the long term. These publicly traded players are paying dividends through thick and thin – whether the markets are bullish or bearish and the economy is thriving or struggling.
That's because their products and services are so crucial that consumers cannot imagine life without them. This key quality has turned these companies into ATMs that never run out.
Here are our two top picks that offer great income potential for retirees:
1. Procter & Gamble
Consumer giant Procter & Gamble (NYSE 🙂 fits in well any long-term pension portfolio. P&G has a long history of rewarding its investors by steadily growing its payouts. The Cincinnati, Ohio-based company has increased its dividends for 61 consecutive years, a track record few companies can match.
Procter & Gamble 1 Year Pass.
Now, the global health crisis has positioned P&G to grow even faster and generate additional income for its shareholders. P&G raised its outlook last month after posting the best organic sales growth since 2005 amid a boom in the home use of toilet paper and cleaning products.
The maker of Tide laundry detergent and Dawn dishwashing liquid said organic sales growth was up 9% in the US. Sales grew in each of P & G's business units, led by the textile and home care segment, which has grown significantly as consumers wash, wash and clean more while working from home.
With a payout ratio of 59%, the company has enough runway to further grow its investor income stream. Over the past decade, payouts have doubled to $ 0.79 per quarter per quarter. PG shares currently yield 2.27%. Shares closed at $ 138.76 on Monday after gaining about 12% this year.
2. Toronto Dominion Bank
Canadian banks are a good choice for retirees in North America. What makes them reliable revenue generators is Canadian regulatory fitness, less competition and their revenue diversification.
Canada's largest lenders have been very consistent in rewarding investors through steadily growing dividends, on which they spend about 40% -50% of their income.
Toronto Dominion Bank 1-Year Chart.
In this group, we especially like Toronto Dominion Bank (NYSE :), (TSX :), Canada's second largest lender. It has a very attractive dividend policy, supported by strong growth momentum, and significant US retail banking activity
TD has more retail locations in the US than Canada, with a network stretching from Maine to Florida.
In total, TD derives approximately 30% of its revenues from its US retail business. The bank also has a 42% ownership stake in trading platform and broker TD Ameritrade (NASDAQ :), as well as a fast-growing credit card portfolio.
Following the global health crisis and the resulting deep recession, TD's revenues are again under pressure. But there is a high probability that the lender will emerge more robustly out of this downturn due to its superior asset quality and strong balance sheet.
TD stock stakeholders now earn $ 0.5925 per share quarterly dividend, which translates to 4.5% yield – an impressive return when it yields less than 1%. TD shares, after a 13% rise in the past quarter, closed at $ 53.35 yesterday.
Bottom Line
By adding solid dividend stocks to your income portfolio, you can create a sustainable income stream that you can rely on during retirement. You should start building your income portfolio slowly when stock prices are attractive and yields are high. By following this strategy, you will continue to earn steadily growing payouts even when the economy is in bad shape.
