If you're in your 70s, you've passed well into the retirement years. It's likely that a salary isn't the main source of your income anymore, with Social Security and your nest egg providing the cash you need to live. Instead of eating into that nest egg, though, you should be doing your best to live off the income it can generate. This is where dividend-paying stocks come in. But taking big risks with a finite nest egg is something you can't afford. That's why Duke Energy Corp (DUK 0.22%) and Realty Income Corp (O -0.59%) should be on your wish list.
Once it's gone, it's gone
One of the big concerns for investors in their 70s is running out of money. After all, there's still a decade or more of life to pay for. But there's a problem: With the vast majority of your life behind you, there's no way for you to make up for investing mistakes. Taking on too much risk for a high yield could lead to seeing dividend cuts, and, perhaps worse, capital losses. That's why safety is just as important as income. This is part of the reason for the rule of thumb about increasing your investments in bonds as you age.
But the income bonds provide will slowly be eaten away by the ravages of inflation. Which is where low-volatility stocks with long histories of regular dividend increases can make all the difference. These securities will help keep your buying power growing along with inflation, perhaps even outdistancing that silent scourge over time.
Stocks with low betas are the place to start. Beta is a measure of relative volatility, usually in comparison to a broader index like the S&P 500. A beta of 1 suggests that a stock will be equally as volatile as the index; above 1 hints at above index volatility. And, more to the point here, a beta below 1 suggests reduced relative volatility. Duke and Realty Income have betas of 0.26 and 0.29, respectively.
Spending to grow
As one of the largest utilities in the United States, Duke Energy provides millions of customers with electricity and natural gas. Its regulated electric and natural gas utility assets are the backbone of its business. But it has also been reaching out into new areas, including a growing renewable power merchant business and an expanding midstream energy segment. These are largely fee-based and long-term contract-driven operations that add diversification to Duke's business and have been growing more quickly than its regulated assets. Management expects to grow earnings and dividends by a solid 5% (or so) a year driven by big capital spending plans. (That beats the long-term rate of inflation growth, by the way.)
As a regulated utility, Duke has to get approval from the government before it can raise the rates it charges customers. Generally speaking, the more it spends on its regulated assets, the more it will be allowed to charge. Its current plans call for spending over $36 billion between 2017 and 2021, with roughly $30 billion of that earmarked for its regulated electric assets. That will make up the bulk of the 5% earnings growth management is projecting, with renewable power spending and investment in the natural gas space (including pipelines) rounding out the full 5%.
Duke has a 4% yield, roughly twice what you'd get from an S&P 500 Index fund. Add in the fairly clear spending and growth plans, and Duke could easily be a cornerstone investment for your portfolio. And rest assured about the dividend: It probably won't grow by leaps and bounds, but Duke has paid a dividend every year for over 90 years. That will help you rest easy at night while you supplement your Social Security check.
Adding some hard assets
Realty Income is another solid dividend payer, offering investors a roughly 4.5% dividend yield. This company is a real estate investment trust that owns single-tenant, triple-net-lease assets. That means that it owns the property, but the lessee is responsible for virtually all of the expenses (like maintenance and property taxes). It's a fairly steady business if you pick the right tenants and have a diversified property portfolio.
On that score, Realty Income owns over 5,000 properties spread across 49 states. Roughly 80% of its rental income comes from retail properties, with 39% of that from investment-grade rated tenants. About 13% of rents come from the industrial space, with 80% of that from investment-grade tenants. The rest of its rent roll is attributable to offices (88% investment grade) and agricultural properties (it owns some vineyards). There's clearly a lot of diversity built into Realty Income's portfolio.
And it has a tremendous track record of success, the evidence of which is clearly seen in the 80 consecutive quarterly dividend increases. All in, it has increased its dividend every year for 24 years running. Next year it will, barring any unforeseen disasters, hit the 25-year mark, making it eligible to be a Dividend Aristocrat. Rent hikes and acquisitions should keep the dividend growing in the mid-single-digit range. Realty Income won't excite you, but the slowly growing monthly dividends will surely make sleeping easy.
Give yourself a break
Once you reach your 70s, your investment goals have likely shifted toward income and safety. You've worked hard to build a nest egg, and now is the time to let it work for you with boring dividend-paying stocks like Duke Energy and Realty Income. These are the kinds of companies you can check on a few times a year instead of fretting over their daily gyrations. That's a better way to supplement your Social Security check than reaching for high-risk, high-yield investments and worrying that you'll do irreparable damage to your income or savings if a stock blows up on you.