You shouldn't spend your golden years worrying about the dividend stocks in your retirement portfolio. The best stocks for retirees combine healthy payouts with long-term stability.
So when we asked three Motley Fool contributors to share their best dividend stock ideas for a modern retiree, their picks turned out to deliver these qualities in spades. Here are a few reasons you should consider owning DSW (DBI 7.21%), Procter & Gamble (PG 1.78%), and Taiwan Semiconductor Manufacturing (TSM 0.10%) today.
An attractive and stable dividend
Daniel Miller (Procter & Gamble): Despite recovering for much of the summer, Procter & Gamble Co.'s stock price has still shed 11% of its value this year thanks to investor concerns about its growth potential. Retirees, however, would do well to consider PG for its stability and solid dividend yield. Currently, its dividend yield is a robust 3.4%, but more impressive is its history. The company has been in business for 180 years with products in more than 180 countries and has increased its dividend for 62 consecutive years. In a world where companies can go from prosperous to bankrupt in the blink of an eye, these are comforting statistics for retirees.
Furthermore, P&G provides its investors with an amount of safety due to its scale and strong retailer relationships. Consider that even after its size down that left it with 65 brands, 21 of those brands generate between $1 billion and $10 billion in annual sales, which is massive. Because it has so many megabrands, especially ones that span many different aisles, retailers favor and trust P&G as a valuable supplier. And as many of P&G's brands are consumer staples, a bulk of its business has proven to be more resilient during economic downturns.
P&G still faces challenges as it tries to accelerate growth. It's had major shipping issues in Brazil, inflation woes in a handful of overseas markets, and rising commodity costs, to name a few. But management is pushing price increases to help offset costs and focusing on improving its market share. This isn't P&G's first rodeo, and it's been able to consistently boost its dividend over the decades. If management can indeed reignite growth, P&G is an excellent stock for retirees.
Keep this chipmaker on your shoulder
Anders Bylund (Taiwan Semiconductor): This microchip manufacturer is a world leader in an industry with eons of business relevance ahead of it. Yes, Taiwan Semi runs a capital-intensive operation that requires never-ending investments in chipmaking equipment, but $9 billion of capital expenses are not a problem when you have $20 billion in operating cash flows to spend. Taiwan Semi still pumps a cool $6 billion into its annual dividend payments with room to spare for future payout boosts.
It might take a while to get used to Taiwan Semi's unusual payout schedule, packaging everything into a single payout per year. The company has grown those payments by an average of 27% per year over the last four years, which kept the dividend yield fairly stable in the neighborhood of 3% even as share prices marched 86% higher.
So you're getting a rock-solid dividend yield paired with impressive share price gains. This company also holds an absolutely unique position of leadership in the chip foundry industry. Taiwan Semi counts pretty much every chip designer you'd care to name among its customers, a group that may soon include mighty Intel (INTC 0.58%). That's right: Intel has long counted manufacturing expertise as a competitive advantage, but TSMC is leading the architecture race these days and is where even Intel turns for third-party help.
That's the type of long-term leadership you want in your corner, managing a 3% dividend yield and a market-beating stock. And Taiwan isn't even expensive, trading at less than 20 times trailing earnings and free cash flows.
Ready for a marathon
Rich Duprey (DSW): The turnaround underway at DSW is gathering strength, and though the stock is up 60% over the past year and more than 45% year to date, this footwear retailer has its kicks laced up and can still run higher. Even better, it offers a dividend that yields 3.2% annually, giving retirees the benefit of both income and capital appreciation.
Following a number of missteps, DSW seems to have found its footing. It's written off virtually all of the mistake that was its acquisition of Ebuys and exited its discount shoe business at Gorman's, which went bankrupt. It has also now completed its acquisition of Town Shoes that should give it significant exposure in Canada.
Certainly, a footwear retailer is not an exciting play, and it is a competitive environment, but DSW's store renovations, shoe selection expansion, and even some novel services like pedicures at some stores, seem to be paying off. It easily trounced analyst expectations this past quarter and raise guidance for the year, which led the stock to jump nearly 25%, but it should be able to build on that with its member loyalty program, which it has enhanced and upgraded and has attracted some 25 million members.
Management appears to have a clear plan to execute, and though it can look pricey by some measures, DSW trades at a fraction of its sales and goes for 16 times the free cash flow it produces. The rise in its stock has pulled it out of bargain-basement territory, but it should continue to be a steady grower -- one that, because it's not a flashy business, ought to allow it to go higher under the radar.