Which stocks are an ideal investment for your golden years?
If you're a buy-and-hold investor, large-cap dividend stocks are your best bet. These companies typically have strong business models that allow them to generate regular cash flows for their shareholders.
In addition to receiving income when you need it most, large-cap income-producing stocks are also less volatile during economic downturns, such as those we faced during the pandemic.
Their strong balance sheets, essential products and services and large global footprint help investors achieve significant annual returns. Below we have identified three such stocks:
1. Home Depot
It's easy to see the value of home improvement giant Home Depot (NYSE:) in a retirement portfolio. It is the type of stock that is ideal for regular cash flows, combined with strong upside potential.
In addition, the current work-from-home environment and low interest rates have further strengthened the bullish case for HD and its potential to generate steadily increasing dividend income.
Weekly home deportation chart.
The Atlanta-based retailer, which last year benefited from pandemic changes in consumer behavior and federal incentive payments, said in August that demand for its products has remained strong. In the latter, comparable store sales — a measure that adjusts for store opening and closing — rose 4.5%, after four consecutive quarters of more than 20% growth.
The company is also a reliable dividend payer. Over the past five years, the quarterly dividend has increased by an average of 22% per year. With an annual dividend yield of 2%, the company pays a quarterly payout of $1.65 per share. And with a solid 44% payout ratio, it has a lot more room to grow. The stock, which closed yesterday at $331.77, is up 20% this year.
2. American Water Works
Utilities that provide power, gas, water and telecom services to consumers are low-risk investments, making them attractive to long-term investors. In general, these companies regularly increase the payouts. In many cases, they have been increasing their dividends for decades.
Holding these stocks over the long term is a great way to ensure a steady stream of income with above-average returns, even when other parts of the market undergo significant adjustments. In this area, consider stock of American Water Works (NYSE:), a New Jersey utility company that provides drinking water in multiple states. The utility provides regulated and market-based drinking water, wastewater and other related services to 15 million people in 46 states.
This massive footprint helped American Water generate consistent returns that outperformed other utilities. Over the past five years, the utility has generated 126% total return for its investors. With an annual dividend yield of 1.28%, the utility pays $0.6 quarterly in dividends. That payout has increased by an average of 10% per year over the past five years.
American Water Works Weekly Chart.
AWK shares closed at $187.54 on Thursday, after gaining more than 20% this year.
3. Coca-Cola
Atlanta-based food and beverage giant Coca-Cola (NYSE:) is another fit candidate to buy and hold. The company has been issuing dividend checks for more than a century, demonstrating the strength of its brands and its ability to survive the toughest economic times.
Coca-Cola Weekly Review.
Like many consumer brands, Coca Cola has been hit by the COVID-19 pandemic as sales in amusement parks and theaters dried up after lockdowns. But the company's balance sheet remains strong and management is confident in its liquidity position.
At a time when health-conscious consumers are moving away from sugary drinks, the company is expanding its healthy offerings. As part of his drive to grow beyond its namesake brand and become a 'total beverage company' Coke is acquiring beverage startup companies to better resonate with health-conscious customers and find new areas of growth. His recent investments include Honest Tea, Fairlife Dairy and Suja Life.
Trading at $55.86 at yesterday's close, Coke's share is yielding 3.02% annually. That return may not look too exciting, but the company has a long track record of increasing its payout — 57 straight years now. With 7% annual dividend growth over the past 10 years, KO currently pays a quarterly payout of $0.42 per share.
