Please ensure Javascript is enabled for purposes of website accessibility

3 Dividend Stocks Perfect for Retirees

By Todd Campbell, Jamal Carnette, CFA, and Nicholas Rossolillo – Updated Apr 14, 2019 at 10:29AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Here's why these high-income stocks can be owned in retirement portfolios.

If you're an income investor, you probably already know that dividend stocks not only provide a steady stream of welcome income, but they can also produce market-beating returns. Some income stocks may be better to own in retirement than others, though. Retirees need predictable sources of income, and they have less time to make up for mistakes.

So which dividend stocks can retirees consider buying now? To find out, we asked three Motley Fool contributors. Here's why they think AT&T (T -0.99%), Ventas (VTR -2.42%), and Chevron (CVX 0.57%) are retiree-friendly stocks worth adding to income portfolios.

AT&T is a yield giant

Jamal Carnette, CFA (AT&T): You can't blame conservative investors for steering clear of AT&T. At first glance, its balance sheet looks like a mess! AT&T is the biggest nonfinancial issuer of debt, with approximately $170 billion on its balance sheet. With shares now yielding approximately 3.5 times the S&P 500's yield, it's clear investors are pricing in the prospect of a dividend cut.

A senior man working on a laptop in front of a wall with question marks drawn on it.


But merely looking at the liability side of the equation is flawed analysis, and assets should be considered. AT&T acquired DirecTV and Time Warner, two cash flow-accretive businesses. Last year's record free cash flow (cash from operations minus capital expenditure) was more than adequate to pay dividends. Next year, management has guided for $26 billion in free cash flow, which is more than adequate to pay $15 billion in projected dividend outlays.

While AT&T boasts it has raised dividends for 35 consecutive years, investors should look elsewhere for dividend growth stocks. AT&T would be better suited using its remaining free cash flow to pay down debt. And that's what management has promised, a "laser focus" on reducing debt. At a 7% yield, however, the company doesn't have to significantly increase payouts to be an income gem.

Aging boomers make this REIT a top dividend stock to own

Todd Campbell (Ventas): If you'll be over age 65 by 2035, you'll be in good company. Some 78 million Americans will be above that age milestone in 2035, which means that for the first time in U.S. history, there will be more seniors alive than children.

Healthcare real estate investment trusts (REITs) are a great way for dividend-hungry retirees to gain exposure to aging America, and Ventas is one of the biggest healthcare REITs you can buy. Roughly 54% of its healthcare properties are senior housing, but its portfolio also includes medical offices (19%), life sciences properties (7%), and health systems properties (6%). Its portfolio positions Ventas to benefit significantly from demand for specialized senior housing, increasing doctor visits, and investments in next-generation treatments.

Of course, there's no telling if regulators will change healthcare in ways that cause vacancy rates at Ventas properties to increase. Interest rates could make it more costly to develop new properties, also crimping profit. However, I think those risks are more than offset by the opportunity associated with addressing an older, longer-living America. If I'm right, then a 5% dividend yield and the potential to build increasingly more properties make this a top dividend stock retirees can buy.

Check out the latest earnings call transcripts for AT&T, Ventas, and Chevron.

Land oil and gas rigs operating on a hilly landscape.


Big oil, big dividends, consistent returns

Nicholas Rossolillo (Chevron): Oil prices took a header at the end of 2018, falling some 40% from October 2018 highs through the holidays. That kind of price action can wreak havoc on the fossil fuel industry, and this time was no exception. Many stocks fell along with the commodity value, as lower pricing generally means lower profits.

A look at Chevron's stock might indicate the integrated energy giant was in the same boat as the rest of the industry, but that isn't the case here. Though shares fell during the 2018 fourth quarter, they subsequently rebounded and are now up 7% over the last 12 months -- even as energy prices have yet to return to their multiyear highs set last fall.

The key to Chevron's success? It operates a diversified exploration, refining, and services business, which helps it weather the ups and downs inherent in commodity production. In spite of the industrywide downturn, full-year 2018 production was up 7%, with another 4% to 7% growth expected in 2019. As a result, revenues and earnings were up 17% and 60%, respectively, in 2018. With energy prices on the mend and production rising, Chevron should turn in another profitable year for owners of its stock.

For a global operation like Chevron, those are pretty incredible numbers. The usually slow-and-steady enterprise is perfect for retirees, though, as the consistent growth the company posts leads to dividend increases. That was the case early in 2019 when Chevron doled out a 6% raise for shareholders, the 32nd year in a row it has increased the payout. Given an annual yield of 3.9%, investors who live off their savings should give this one a look.

Jamal Carnette, CFA owns shares of AT&T. Nicholas Rossolillo owns shares of AT&T and Chevron. Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

AT&T Stock Quote
$15.93 (-0.99%) $0.16
Chevron Stock Quote
$158.53 (0.57%) $0.90
Ventas Stock Quote
$39.86 (-2.42%) $0.99

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.