So Your Pension Is in Jeopardy? Consider These Investments

There was a time when a pension provided reliable retirement income. Not anymore. As many retirees have discovered recently, pensions can reduce their payments or even demand that overpayments be returned.

Now that's a pleasant thought, isn't it?

If you want to have more control over your retirement income, consider investing in these three big companies with respectable and growing dividends.

An open-handed telecom
The largest and highest-yielding dividend stock of this short list is AT&T (NYSE: T  ) . Sporting a yield of 5.1% and a market capitalization of more than $180 billion, AT&T competes in the highly competitive world of wireless and landline communications. It's a business in flux as wireless grows, cable declines, and landline looks almost archaic.

Does AT&T's size provide safety for its dividend despite the changes in its business? It would seem so. The company has paid a dividend for the past 29 years, although the dividend has increased only modestly year over year. The payout ratio has fluctuated over the years, with 2012 recording a payout ratio of 144%, which is clearly unsustainable. However, the past three quarters have shown AT&T's earnings to exceed its dividend payment.

AT&T looks like a large -- and some would say lumbering -- company in a fast-moving industry. Return on equity is an uninspiring 8.3%, and its profit margin is an equally pedestrian 5.8%. AT&T's earnings growth is erratic, and its debt-to-equity ratio is greater than 89. AT&T won't stun the world with spectacular growth, but it also won't collapse into oblivion any time soon.

Supersize that dividend growth
Much like AT&T in telecommunications, McDonald's (NYSE: MCD  ) dominates the fast food business. Like AT&T, McDonald's operates in a highly competitive environment. However, the dividend story differs significantly here. McDonald's current dividend yields 3.3%, which is smaller than AT&T's. Its dividend growth surpasses AT&T's, though: The Golden Arches' dividend has grown more than 62% since 2010, while AT&T's has grown less than 10%.

From an investment perspective, McDonald's makes a more compelling case than AT&T. While facing substantial competition and likely slow growth in the U.S. and Europe, McDonald's sees opportunity in Asia and emerging markets. While the dividend yields less than AT&T's, the payout ratio is generally lower and more stable. McDonald's return on equity comes in at an impressive 36% but its debt-to-equity ratio matches AT&T's 89.

McDonald's laid out a corporate strategy called "Plan to Win" back in 2005. The idea was to modernize its restaurants, upgrade its menu to reflect consumer tastes and regional preferences (there's a vegetarian McDonald's in India, for example), and increase accessibility. Indications are that it's working: Since 2005, the company's stock has risen from about $31 per share to about $96 per share today. Meanwhile, the dividend increased about 460% from $0.67 per share to the current fiscal year's projected $3.08.

Cashing in on the U.S. energy boom
The smallest of the three companies presented here, Enterprise Products Partners (NYSE: EPD  ) , may offer investors the best combination of immediate income, dividend growth, and capital-gains prospects. Enterprise operates a broad range of energy transportation businesses centered on the U.S. Gulf Coast. From pipelines for natural gas and oil to barges and export terminals, Enterprise moves energy from across the U.S. and the Gulf of Mexico to where it's needed. The dividend yields 4.4% and has grown 30% since 2009.

Enterprise operates its pipelines and other assets generally on a fee-based model. This partially insulates the company from price fluctuations in crude oil, natural gas, and natural-gas liquids. Enterprise operates pipelines in the Marcellus and Utica shale plays in Pennsylvania and Illinois, the growing Niobrara shale in Colorado, established shale oil plays in Texas and Oklahoma, and the Gulf of Mexico.

Financially, Enterprise boasts an enviable dividend coverage ratio of 1.24. The distributable cash flow has increased from $1.6 billion in 2009 to $4.1 billion in 2012. Net cash flow from operations has shown similar increases. While capital expenditures have steadily increased, the total debt-to-expenditures ratio has remained stable, and the cost of debt has slowly declined. Natural-gas liquids drive much of Enterprise's revenue, and that business has been steadily growing. Future growth will likely come from a combination of increased propane and butane exports, gasoline exports, and propylene production.

Final Foolish thoughts
Americans used to regard their pensions as being largely bulletproof. That is no longer the case. For those looking to assert more control over their retirement income, these three companies make viable options, as illustrated by the chart below.

T Dividend Chart

T Dividend data by YCharts.

AT&T offers the highest immediate yield, but with the slowest dividend growth and limited capital-gains prospects. McDonald's offers the lowest yield, but has the greatest rate of dividend growth. Its track record of capital gains isn't bad, either. Enterprise offers a yield that's just under AT&T's, but with significantly better distribution growth. Enterprise also sports a better capital-gains record than McDonald's. Given the growth potential of the U.S. energy market, Enterprise looks well-positioned to grow its distribution for years.

Three more ways to play the U.S. energy boom
Record oil and natural-gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 


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