Dividend stocks can be perfect for retirees, so long as you pick the best ones. Unfortunately, many of the best-known dividend blue chips are still relatively overvalued while also paying weak yields, and many of the highest-yielding stocks are potential dividend traps waiting to spring.
So what's a retiree looking for the perfect dividend stock to do? Find companies with a solid, preferably above-average yield that also have a proven track record of growing the payout and clear business prospects to support years of future growth.
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To help you get started, three Motley Fool contributors identified three dividend stocks that perfectly match that description: Aflac Incorporated (AFL +0.69%), ONEOK Inc. (OKE 1.94%), and Brookfield Infrastructure Partners LP (BIP +0.85%). These are three best-in-class businesses with great financials, solid long-term prospects, and talented, tenured management.
Keep reading below to learn what makes each of these ideal for retirees looking for income for today and growth for tomorrow.
Insure a healthy stream of dividend income
Dan Caplinger (Aflac): Most people know about Aflac because of its quirky marketing campaigns featuring a talking duck. But those who use Aflac's supplemental insurance products know how valuable they can be, providing much-needed coverage for areas in which most traditional health insurance doesn't pay benefits. From policies designed to cover specific health conditions to accident and short-term disability coverage, Aflac fills in gaps that the insurance industry has largely ignored, and that's allowed the insurer to prosper.
Even though U.S. investors are familiar with Aflac, many don't know that the company gets most of its business from Japan. There, the company offers similar products that are tailored to the needs of Japanese workers, and the geographical diversification has often helped Aflac smooth out its growth and avoid hiccups that have hurt rivals that focus solely on one country.
AFL Dividend data by YCharts.
For dividend investors, Aflac has an impressive 36-year streak of delivering increases in its dividend payouts every year. The current yield of 2.4% isn't extremely large, but it's above the market average, and the insurer gave shareholders a generous 16% boost to its quarterly payout earlier this year. With conditions remaining favorable in the insurance industry, Aflac is poised to retain its status as a leading provider of profitable supplemental coverage for millions of customers.
High growth from a high yielder
Matt DiLallo (ONEOK): Pipeline giant ONEOK is in the upper echelons of dividend stocks. For starters, it offers an above-average yield of 5.5%, which puts it among the top 10% of dividend stocks in the S&P 500. Further, the company backs that high-yielding payout up with a strong financial profile. Not only does it get more than 90% of its cash flow from stable fee-based contracts, but it has an investment-grade credit rating backed by an improving leverage ratio and a strengthening dividend coverage level.
However, what sets ONEOK apart from other high-yielding options is its growth potential. The pipeline company currently expects to grow its earnings and dividend at a slightly more than 10% annual pace through at least 2020. For comparison's sake, the average stock in the S&P 500 expects earnings and dividend growth closer to 6% over that time frame.
Fueling ONEOK's fast-paced growth is the fact that it has locked up $6 billion of needle-moving growth projects over the past year. As those expansion projects come online, they'll supply ONEOK with even more cash flow to both sustain and grow its high-yielding dividend.
Put it all together, and ONEOK is the only large-cap stock in the S&P 500 with an investment-grade balance sheet, a dividend yield above 4%, a history of more than 25 years of dividend stability and growth, and expectations of increasing both its earnings and its dividend at a double-digit pace through 2020. That stellar combination is what makes it such a great stock for retirees.
A perfect combination of yield and future growth
Jason Hall (Brookfield Infrastructure Partners): Brookfield Infrastructure fits in a perfect niche for retirees, paying a substantial yield for today while offering solid growth prospects for tomorrow.
The stock yields a 4.6% payout at recent share prices, and management has done an incredible job of both supporting the payout and growing it with each passing year. Over the past decade, Brookfield's payout has increased substantially:
BIP Dividend data by YCharts.
And there's plenty of growth ahead. With a global footprint in energy, telecommunications, transportation, and shipping assets in some of the world's fastest-growing economies, Brookfield Infrastructure is set to profit as the global middle class expands in coming decades, driving huge need for exactly the kinds of assets Brookfield specializes in.
So far this year, it's taken a bit of a step backward, but even that's been somewhat by design. Management has sold off certain assets while taking a little longer to reinvest those proceeds. This has resulted in a decline in FFO -- funds from operations, an important earnings metric -- in recent quarters, but those new investments are primed to drive cash flows and earnings even higher by the end of next year.
This long-term focus by management has resulted in a short-term opportunity for investors, too. At current prices, Brookfield Infrastructure units are down 12% from the all-time high reached about a year ago.
If you're a retiree looking for dependable income today and growth for the long term, Brookfield Infrastructure should have a place in your portfolio.
