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3 Dividend Stocks Perfect for Retirement

By John Bromels, Jeremy Bowman, and Daniel Miller – Apr 24, 2018 at 12:13PM

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General Motors, PepsiCo, and Enterprise Products Partners offer the reliable income streams conservative investors crave.

Dividend stocks are great options for retirees' portfolios: The best ones offer the reliability of a quarterly payment coupled with the stability of a sound business model that can support -- and hopefully grow -- those payments. 

We asked three of our investors to scour the stock market and bring us back their recommendations for the best dividend stocks for retirees' portfolios now. They came back with three companies from a diverse array of sectors: automaker General Motors (GM 2.43%), food and beverage giant PepsiCo (PEP 1.22%), and oil and gas pipeline operator Enterprise Products Partners (EPD 1.64%).

An older man sitting next to an older woman on a couch puts a coin into a piggy bank

These top dividend stocks are ideal for retirees looking for a steady source of income. Image source: Getty Images.

A dirt cheap profit machine

Jeremy Bowman (General Motors): A company that emerged from bankruptcy less than a decade ago may not sound like an ideal stock to hold in retirement, but there are other things retirees may want to consider about General Motors. The carmaker's shares today pay a dividend yielding 4.1%, and they trade at a P/E of just 5.5, compared to the S&P 500's P/E ratio of 24.2. In other words, your cost for a dollar of GM's earnings is less than a quarter of what you'd pay for the those of the broader stock market.

Because it's in a cyclical industry, the Chevy maker's results may fluctuate more than those of a typical defensive stock in the consumer staples or healthcare sectors. However, even with the American auto market past its peak, GM still expects earnings growth to return in 2019 as it introduces a new line of full-size pickups, and its low valuation means share buybacks will go a long way to lifting earnings per share.

The car market is transitioning toward autonomous and electric vehicles, and in both of these arenas, GM appears to have a leading position. Bolstered by its acquisition of Cruise, the company plans to produce a line of self-driving vehicles for a ride-sharing service next year, and it recently released an image of a prototype Cruise AV without a steering wheel. Led by the Chevy Bolt, the company delivered 69,500 electric vehicles last year, and it plans to introduce 20 new all-electric models by 2023.

With a solid dividend yield, cheap valuation, and promising future ahead of it, General Motors looks like the kind of reliable income stock that is perfect for retirees.

Brand power

Daniel Miller (PepsiCo): Many investors sifting through the markets looking for perfect dividend stocks for retirees are probably after stable companies with track records of solid dividend growth. If that describes what you're seeking, look no further than PepsiCo, which has a slew of incredibly powerful brands, and a long history of raising its payouts.

In addition to its namesake Pepsi line, the company has 22 brands that generate over $1 billion apiece in annual revenue, including Gatorade, Mountain Dew, Tropicana, Quaker, Lay's, Doritos and Cheetos. Currently, PepsiCo dishes out $0.805 per share quarterly for a yield just under 3% -- and, incredibly, 2017 marked the company's 45th consecutive annual dividend increase.

Another factor that should appeal to retirees looking for income stocks is that PepsiCo has a wide competitive moat due to its intangible assets, cost advantages and brand power. Because it has so many billion-dollar brands, it has strong relationships with distributors and retailers. Those brands will continue to bear fruit for Pepsi as the company funnels significant resources into growth with new innovative products and creative advertising, such as its recent partnership with Yankees outfielder Aaron Judge.

There's no question consumer tastes in the U.S. are trending toward healthier products, and Pepsi understands the challenges it faces on that score. Among its plans, it has set a target of reducing the amount of sodium in 75% of its global foods portfolio to 1.3 mg or less per calorie. But given its strong brands and long history of dividend growth, if Pepsi can adapt to healthier food trend, it should remain a great income stock for retirees.

A hefty yield

John Bromels (Enterprise Products Partners): If you think a yield of 3% or 4% sounds good for a retirement account, I'll bet a 6.3% yield sounds fantastic. Better yet, this stock's payout is driven by a stable, fee-based business that's one of the largest of its kind, which makes it an excellent choice for conservative investors. The company is energy infrastructure master limited partnership (MLP) Enterprise Products Partners. 

Before you rush out to buy it, though, be aware that MLP ownership isn't for everyone -- some extra tax hurdles come with those fat yields. But if you do the research and decide you can handle it, Enterprise can be an attractive investment for retirees.

The company has upped its quarterly distribution -- the MLP equivalent of a dividend -- for an impressive 53 consecutive quarters, with an average annual increase of about 5% over the last decade. That track record of growth is especially important to investors on fixed incomes, as it helps to ensure that the power of a company's payout won't get gradually eaten away by inflation. However, Enterprise Products Partners has signaled that it may ease back on that growth rate in 2018.

That's actually a good thing for investors, because a temporary distribution-growth slowdown will help the company strengthen its already-steady financial situation. It will have more cash available to finance growth projects, maintain its high credit rating, and give itself added flexibility to reaccelerate its distribution growth later, or possibly even buy back units.

For retirees looking for an excellent yield, a conservative investment, and a bright future, it doesn't get much better than Enterprise Products Partners.

Daniel Miller owns shares of General Motors. Jeremy Bowman owns shares of General Motors. John Bromels has no position in any of the stocks mentioned. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Pepsico, Inc. Stock Quote
Pepsico, Inc.
$165.25 (1.22%) $1.99
General Motors Company Stock Quote
General Motors Company
$32.87 (2.43%) $0.78
Enterprise Products Partners L.P. Stock Quote
Enterprise Products Partners L.P.
$24.17 (1.64%) $0.39

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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