Investing for retirement requires a different approach than just betting on growth or value stocks. The fixed income strategy is to buy quality stocks, hold them over the long term and focus on their ability to generate income – now and in the future.
That investment style may seem dull to some, especially in an environment where markets are in a protracted bull cycle and there appears to be no end in sight to this relentless rally. But if your investment goal is to build a solid cash flow for retirement, one you can count on for the rest of your life, then it's a good idea to keep some high-quality dividend stocks in your portfolio.
With these factors in mind, we have shortlisted below three stocks that income investors should consider buying now. Each offers solid income potential for long-term investors due to their ample cash reserves, healthy balance sheets and reasonable payout ratios.
1. Procter & Gamble
Consumer goods are an excellent way for retirees to earn steadily growing income without taking too much risk. The logic is simple: with any economic shock, it is very unlikely that consumers will stop buying things they absolutely need for everyday life, such as toothpaste, toilet paper and dishwashing liquid.
] PG Weekly TTM
Procter & Gamble (NYSE :), the multinational consumer staple producer, is a stock that fits well in this category. The Cincinnati-based company is one of that small group of companies that are considered Dividend Aristocrats – companies that have consistently and consecutively raised and paid their dividends for 25 years or more.
In the case of Procter & Gamble, that stat is even more impressive: the company paid out a dividend for 131 years, increasing that payout for 64 consecutive years. With an annual return of 2.57%, it now pays a $ 0.87 quarterly dividend after an increase of 10% last month. And the payout ratio is a solid 56.35% meaning there's more runway to boost the payout in the future.
Stocks of P&G have weakened about 3% this year, closing at $ 135.15 on Friday. Still, the manufacturer of Dawn dish soap, Charmin toilet paper and Pampers has delivered impressive returns over the past five years, with a profit of 135%, including dividends.
2. Medtronic
Health care stocks are considered relatively safe as producers of solid incomes. Like retailers, utilities and garbage collectors, healthcare providers offer services that remain necessary even during a recession. Moreover, economic fluctuations generally do not slow the introduction of new medicines and devices.
MDT Weekly TTM
Medtronic (NYSE 🙂 is a lesser known health care stock that we value for the company's strong market position and hefty payouts. The world's largest medical device manufacturer controls 50% of the global pacemaker market. It is also a leader in products that aid in spinal surgery and diabetes care.
Regardless of the direction of the economy, stocks like Medtronic will continue to generate money. The company has a long-term strategy to distribute 50% of its free cash flow as a dividend to shareholders. With an annual return of 1.83%, the company pays dividends of $ 0.58 per quarter. That payout has increased on average by more than 11% per year over the past five years. In addition, the company has a healthy cash flow of 54.62, lower than the industry average of 86.01.
The Dublin, Ireland-based medical device company sees the & # 39; best short term up in years, ”according to a recent note from Bank of America. Those positive catalysts include a robust recovery from surgical procedures as the coronavirus pandemic abates. BoA expects Medtronic to become only the second company behind Intuitive Surgical (NASDAQ 🙂 to apply for approval for a surgery-assisted robot.
The stock, after an 8% increase this year, closed at $ 126.70 on Friday.
3. Home Depot
Home Depot (NYSE 🙂 is one of those retailers ideally positioned to continue to send dividend checks to retirees. The home improvement retailer has invested heavily in recent years to prepare for the e-commerce attack and changing consumer behavior.
HD Weekly TTM
Just before the deadly pandemic, the Atlanta-based home improvement chain had completed an $ 11 billion restructuring plan to modernize the company's stores and expand digital options. upgrade, and improve the offering for its major trading customers.
Armed with these upgrades, Home Depot will remain in a growth cycle, especially when factors such as a hot real estate market and the changing ways people use their homes increase the sale of home furnishings and improvement products.
The company is also a reliable dividend payer. Over the past five years, the quarterly dividend has grown 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 50% payout ratio, it has a lot more room to grow.
The stock, which closed at $ 339.25 Friday, is up 20% over the past three months.
