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3 Dividend Stocks That Are Perfect for Retirement

By Steve Symington, Leo Sun, and Reuben Gregg Brewer – Updated Apr 14, 2019 at 11:22AM

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Kick back and let your money do the work by investing in these companies.

For retirees, dividend stocks can offer an ideal combination of steady income and potential share-price appreciation. But it can be harder than you think to find solid dividend stocks worthy of your retirement portfolio.

To that end, we asked three Motley Fool contributors to each find a dividend stock that they believe is perfect for retirement. Read on to see why they picked Activision Blizzard (ATVI 5.91%), W. P. Carey (WPC 2.73%), and Cisco (CSCO 1.57%).

Couple holding hands on a beach watching a beautiful sunset


It's not game over for Activision

Steve Symington (Activision Blizzard): Shares of video game giant Activision Blizzard have plunged nearly 50% from their all-time high last September, driven by concerns about slowing growth, steep competition, and -- consequently -- the company's plans to restructure during what management describes as a "transition year" in 2019. 

To be clear, Activision set a low bar with its forward guidance last month, calling for 2019 revenue to decline 20% to roughly $6.025 billion. And its profits will suffer as the company streamlines costs, partnerships, and sponsorships, as well as bolstering investments in its core franchises, including Warcraft, Overwatch, Call of Duty, Candy Crush, Hearthstone and Diablo. Even so, Activision management felt comfortable boosting its annual dividend by 9% last quarter to $0.37 per share -- good for a yield of around 0.8% as of this writing -- and authorizing a new two-year $1.5 billion stock repurchase plan.

But putting aside its generous capital returns, these investments should enable Activision Blizzard to emerge even stronger and better poised to compete with rival gaming companies as the industry landscape continues to evolve. With the bandage effectively ripped off given the stock's big drop, now could be a perfect time for retirees to pick up some shares.

Check out the latest earnings call transcripts for Activision Blizzard, W. P. Carey, and Cisco.

Playing the REIT game a different way

Reuben Gregg Brewer (W. P. Carey): Real estate investment trusts, or REITs, are a great way to generate income in retirement (especially if you own them in a Roth IRA). One of the most diversified ways to get access to the institutional property markets is W. P. Carey. It invests in net lease properties, which means it owns the property but tenants pay most of the property's expenses. Usually it engages in financing-like deals, where a company sells a vital asset to Carey and then instantly leases it back. Carey earns the spread between its costs and the rents it charges and the lessee frees up cash for reinvestment.

It's a relatively low-risk approach used by a lot of REITs and supports Carey's generous 5.5% yield and 22-year history of annual dividend increases. Where this REIT changes things up is in its diversification. Unlike most peers, Carey's portfolio is spread across multiple sectors, including office (nearly 26% of rent), industrial (23%), warehouse (about 21%), retail (almost 18%), and other. In addition to industry diversification, Carey's portfolio also includes a unique foreign component, with Europe pitching in around a third of rents.   

WPC Dividend Yield (TTM) Chart

WPC Dividend Yield (TTM) data by YCharts

Investors seem to view this diversification as a negative, affording more-focused peers with domestic portfolios a higher premium. But the extra diversification fits right into Carey's opportunistic investment approach, giving it the ability to put cash to work wherever it sees a good deal. That means more levers for long-term growth, a net positive that makes Carey a great dividend stock for retirees.

An old tech stock with irons in the fire

Leo Sun (Cisco): Cisco, the world's top maker of networking routers and switches, pays a forward dividend yield of 2.7% and has hiked that payout annually for eight straight years. It spent just 47% of its earnings and 46% of its free cash flow (FCF) on that dividend over the past 12 months, so it has plenty of room for future hikes.

Cisco's FCF growth is supported by three main catalysts. First, sales of its routers and switches are rising on robust demand from enterprise campus customers. Second, it's expanding its applications and security units through acquisitions, and bundling those software products with its hardware devices to boost its revenues per customer. Lastly, it repatriated tens of billions of dollars in overseas cash over the past year, which it earmarked for buybacks, dividends, and domestic acquisitions.

Wall Street expects those catalysts to boost Cisco's revenue and earnings by 5% and 18%, respectively, this year. Those are high growth rates for a stock that trades at just 15 times forward earnings -- and that multiple should drop as Cisco buys back more stock.

Cisco's high yield, low valuation, and "best in breed" core business make it a low-risk investment for retirees, but this 34-year-old tech giant still has some irons in the fire. The surging infrastructure requirements for 5G networks and cloud services should boost sales of its networking hardware, as the increased scrutiny of Chinese tech giant Huawei, its biggest rival in routers and switches, could fuel market share gains worldwide.

The bottom line

To be clear, any stocks -- even high-quality dividend names like these -- are inherently more volatile and carry risks you won't find with fixed-income investments. So we certainly can't guarantee they'll go on to deliver outsize returns. 

But that risk also brings the potential for higher rewards. And whether we're talking about Activision's already beaten-down shares, W. P. Carey's diversification and longer-term growth, Cisco's exceptional core business, or the healthy dividends that come with each of these stocks, we think chances are high that retired investors who buy today will be more than happy with their decision.

Leo Sun owns shares of Cisco Systems. Reuben Gregg Brewer owns shares of W. P. Carey. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard. The Motley Fool has a disclosure policy.

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