Big life changes take place when you get into your 60s. For one thing, income to replace a salary is suddenly an important consideration. Which is why if you're in your 60s, you should consider buying these three stocks: Enterprise Products Partners L.P. (EPD 1.05%), Duke Energy Corp (DUK 1.77%), and United Parcel Service, Inc. (UPS 1.38%). Here's a look at why each are well suited for an early retirement portfolio.
1. What a streak
Enterprise Products Partners has a dividend record that's pretty impressive. For starters, the giant oil and gas midstream partnership has increased its distribution for 20 consecutive years. But hidden within that streak is another one -- 52 consecutive quarterly distribution hikes. The disbursement has historically grown at around 5% a year, beating the historical growth rate of inflation. The yield right now is roughly 6.1%.
A sizable quarterly check that gets increased every quarter... that should have your attention. Now take a look at the business. Enterprise owns fee-based midstream assets spanning from pipelines to processing facilities to ships. The prices of the oil, gas, and other products that pass through its system aren't nearly as important as demand for those products, which helps explain why Enterprise's distributable cash flow (what it uses to pay those checks) didn't fall when oil prices took a beating in mid-2014.
As for growth, the company has $8.6 billion worth of expansion projects in the pipeline over the next couple of years, with more on the drawing board. That will help to keep the dividend streak alive. And with so many different businesses under one roof, Enterprise has a lot of levers to pull as it expands. This is a "slow and steady wins the race" type of investment, with a history and yield that are nothing short of impressive.
2. Powering up
Duke Energy is one of the nation's largest power companies, serving around 7.4 million electric customers and 1.5 million natural gas customers in the Southeast and Midwest. The company's history of annual increases is only 12 years long, but it's paid dividends for 96. The yield is currently around 4.2%, well above the roughly 2% offered up by the S&P 500.
The company has been making some changes lately, which is a key reason to like the utility. Duke recently completed the purchase of Piedmont Natural Gas, expanding its reach in the natural gas utility arena. That's expected to be a key growth area in the utility space. However, that's just one move Duke has made. It also merged with Progress Energy in 2012, sold its Midwest merchant business, jettisoned its foreign operations, and is building a renewable power unit. Its goal? Shift toward a more stable business driven by regulated operations and long-term contracted businesses.
The impact of these changes has already been felt, with dividend growth ticking up from 2% a year to 4%. Going forward, management expects earnings to grow between 4% and 6% a year, with similar growth in the dividend. Like Enterprise, Duke Energy probably won't excite you, but it will keep paying you to own it.
3. Big brown
United Parcel Service, or UPS for short, is a global delivery giant. It's got a problem... there's too much demand for its services now, with online shopping growing so fast that people haven't been going to brick and mortar stores as much. It's a key middleman, moving packages from internet retailers to their customers. This is no joke, either: increased demand during the holiday season has stressed the company's systems in recent years and led to delivery delays.
But UPS is working to fix the problem, adjusting pricing and investing in its business to keep up with the changing markets it serves. For example, it's increased its capital spending from 4.5% or so of revenues to 6% this year to expand its capacity. And it's started to charge businesses based on both the size and weight of packages while adding surcharges for peak times and extra fees if demand doesn't meet retailer projections.
UPS' yield is roughly 3% today, the lowest of this trio. However, the delivery giant has increased its dividend or held it steady for nearly 50 years. And the average growth rate in the dividend over that span is around 10% annually. Over the last three years, the period most impacted by the shift in consumer shopping habits, dividend growth has been slower at around 8%. But that's still the highest growth rate here, and well above the historical average for inflation.
That said, with all of the spending that's going on to adjust to the changing retail landscape there's a possibility that dividend growth slows further or even gets paused for a year or two. That's happened in the past. A dividend cut, however, appears unlikely given the company's long and impressive dividend history. And even if there's a pause, the company has proven its willingness to keep the long-run average dividend growth at a high level. In other words, it's probably worth it for income-focused investors to stick around through this adjustment period to benefit from the investments being made today.
Collect those checks
If you are in your 60s you need to shift gears toward companies that will reward you for sticking around with sizable dividends. Enterprise, Duke, and UPS all do that. But you'll also need to find investments that have large and stable (perhaps boring) businesses capable of supporting and growing those dividends now and in the future. This trio offers that as well. Take a closer look at each of these industry leading names and you'll probably find that at least one of them has a place in your portfolio.