With the future for Social Security looking bleak and the days of pension plans fast dwindling, investors must use their own savings to generate income during their golden years. But two challenges income investors face these days are rock-bottom interest rates and being stuck with a cash flow schedule that's not on your schedule. So what's a Foolish investor to do?
Battle for basis points
Limited options exist for folks who need investment income to bridge the gap between what comes in each month -- Social Security and (maybe) a pension -- and what is spent. Here's what some options look like these days for a 10-year, $100,000 investment.
Interest Received Over 10 Years
Value in 10 Years
Source: The New York Times.
Of course, an advantage with bonds is that you invest $100,000 and -- in most cases -- your $100,000 is returned to you at maturity. The disadvantage: You receive not a penny more.
We receive our retirement income monthly, and we pay our bills monthly, so why shouldn't our investments pay us the same way? One hassle-free way to achieve this is by buying a basket of rock-solid companies that pay their dividends in different months from one another.
I've compiled a basket based on the following criteria:
- Diversified companies with strong, competitive positions -- Brand dominance or special niches help these tenacious companies sustain long-term profitability.
- Strong yields -- Companies shelling out dividend yields at or greater than 3%.
- Stable dividend histories -- Companies that have paid dividends for at least 15 years.
Five companies that fit these criteria are listed below.
Annual Dividend Yield
Dividend Payout Months
|MDU Resources (NYSE: MDU )||3%||January, April, July, October|
|Merck (NYSE: MRK )||3.8%||January, April, July, October|
|Health Care REIT (NYSE: HCN )||4.8%||February, May, August, November|
|Intel (Nasdaq: INTC )||3.4%||March, June, September, December|
|Realty Income (NYSE: O )||4.2%||Every month|
Source: Yahoo! Finance.
Collectively, this basket of stocks is diversified across four sectors -- utilities, health care, tech, and REITs -- and pays you income every month.
And remember that $100,000 mentioned earlier? Had it been invested a decade ago in these five stocks equally, an investor would have pocketed a nice $51,000 in dividends plus $64,000 in capital appreciation on top of the original 100 Gs. Of course, there's no telling what this basket will do over the next decade. But the dividends alone from these five stocks nearly outperformed the S&P 500, which returned 5.3% on average annually in the same period.
North Dakota-based MDU Resources is a diversified energy and construction conglomerate. Most new drilling activity and recent acquisitions have been oriented toward oil instead of natural gas as MDU strategically reduces exposure to low-priced natural gas. Its cyclical businesses should gradually improve as the economy strengthens.
Merck possesses a strong portfolio of prescription drugs for human and animal health. Recently, Merck's growth has occurred primarily through joint ventures and acquisitions. These, coupled with its decent pipeline, should help its long-term growth prospects and navigation through its upcoming patent losses.
Health Care REIT
Health Care REIT has diverse ownership interests in health care properties located in the U.S. and Canada. While the company has decreased its percent of revenues derived from Medicare and Medicaid reimbursements, the company's revenues remain affected by reimbursements. Health Care REIT has paid a dividend since 1970.
Intel's semiconductors are inside virtually every tablet, laptop, and hard drive on the planet. The company has been criticized for being late to the mobile chip market, but it's quickly closing the gap. It is a thing of rare beauty to find a tech company that pays a dividend at all, let alone one that weighs in at a solid 3%-plus yield.
The company's large and geographically diverse portfolio spans across nearly all U.S. states. It leases its 27 million square feet of space to retailers, and current occupancy stands at just shy of 97%. Realty Income recently declared its 505th consecutive monthly dividend (that's right, nearly 43 years' worth).
If you're interested in even more dividend-paying stocks, check out our free report. It's jam-packed with nine dividend stocks including one medical equipment company that not only boasts a 98% customer satisfaction rating, but also has doubled its dividend payout since 2006. This report won't be available forever, so get your free copy today.