If you're retired, you want to own dividend stocks that have long track records of consistent, growing dividends. No retiree wants to take undue risk on dividend stocks that haven't yet proven themselves.
Taking the risk out of drug discovery
Rich Duprey (AbbVie): Drugmaker AbbVie still counts on rheumatoid arthritis therapy Humira for the bulk of its revenue. The treatment represented $18.4 billion in 2017, or 65% of AbbVie's $28.2 billion in net revenue. However, patent protection expired here in the U.S. in 2016, and the drugmaker will lose protection in the EU in October. If generics hit the market, AbbVie will likely see revenue plunge, although the drugmaker is constantly researching new indications for the therapy.
What makes the the company especially attractive is the fact it has a robust pipeline of drugs that could easily take up the slack. AbbVie's next leading treatment is Imbruvica, which has the potential to become one of the top five cancer drugs on the market, while two cancer drugs (Rova-T and Veliparib) and an autoimmune-disease drug (ABT-494) could bring substantial revenue when they eventually launch.
AbbVie also pays a dividend of $3.84 per share that currently yields around 3.2%. It can also be considered a Dividend Aristocrat if you include the period it was part of Abbott Labs before it was spun off in 2013. That would give it a 26-year track record of raising payouts, making it a perfect investment for retirement.
A beaten-down food stock
Tim Green (General Mills): Shares of packaged food stocks have had a rough few years. General Mills, known for brands like Betty Crocker, Cheerios, Pillsbury, and Yoplait, is no exception. General Mills stock has lost about 29% of its value since peaking in mid-2016. Sluggish sales, aging brands, and a consumer shift toward more natural foods are all putting pressure on the stock price.
General Mills is working to adapt, acquiring brands that focus on natural ingredients, such as Larabar in 2008, Annie's in 2014, and Blue Buffalo Pet Products earlier this year. General Mills still has plenty of work to do to reposition its portfolio, but you can't say it's not trying.
Earnings growth will most likely be sluggish for a while, but that doesn't change the fact that General Mills is a solid dividend stock. Shares currently yield about 3.8%, and the dividend has been paid uninterrupted for 119 years. With a track record like that, there's little reason to believe that the company can't adapt. The only question is how long it will take.
About to enter an elite dividend class
Matt DiLallo (Enbridge): Canadian oil pipeline giant Enbridge has been paying dividends to its investors for more than 64 years. Even better, the company has increased the payout for the last 23, which puts it just a couple of years shy of entering the elite ranks of the Dividend Aristocrats. The company fully expects to join that group, since it has already announced its intentions to increase the dividend by 10% in both 2019 and 2020.
With its latest increase, Enbridge's stock yields an impressive 6.8%, which like the company's outlook shows, is both sustainable and heading higher. Several factors support this view. First, the company's financials are on solid ground, since 96% of its earnings come from stable sources like fee-based contracts. Furthermore, the company has an investment-grade credit rating and only pays out about 65% of its cash flow to support the dividend.
Those last two factors provide Enbridge with the financial flexibility to invest in high-return growth projects that will increase cash flow. Currently, the company has 22 billion Canadian dollars' ($17 billion) worth of expansions under way, which should fuel 10% annual growth in cash flow per share through 2020, fully supporting its dividend growth outlook. That visible growth, combined with the company's rock-solid financial position, makes Enbridge the perfect dividend stock for retirement.