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3 Dividend Stocks Ideal for Retirees

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When paying for a “work optional” lifestyle, don’t forget your stocks.

For retirees, finding a pairing of stability and maximum income is a tall order. Since the two are not available through one single outlet, a diversified mix of investments that spans asset types is the way to go. Stocks should certainly be added to the list.

While dividend yields from stocks tend to be lower than what can be fetched elsewhere, owning a slice of a company can add some oft-overlooked side benefits: potential share price appreciation and dividend increases, both of which can help fight the insidious effects of inflation. Three stocks our Foolish contributors think are good candidates are Texas Roadhouse (TXRH -1.35%), AVX (AVX), and Realty Income (O -1.59%).

A slow-and-steady restaurant chain with upward potential

Nicholas Rossolillo (Texas Roadhouse): Stability isn't exactly a hallmark of the restaurant industry. Rather, cutthroat competition, thin profit margins, and, as of the last few years, declining foot traffic due to industry overexpansion give a more apt description. That's not the case for Texas Roadhouse.

The casual steakhouse chain has been bucking the trend by focusing on underserved suburban America, offering big portions at a reasonable price, and taking a more measured approach to expansion (opening "only" about 5% net new locations each year) compared to its peers. The fun-loving Lone Star State-themed chain has also been winning the foot traffic battle, posting mid-single-digit comparable sales at existing stores for years even while the average U.S. restaurant has been languishing. That trend continued in the just-reported second quarter of 2019 with a 4.7% increase in comps at company-owned locations and a 4.3% increase at franchises.

Granted, higher wages across many states have been keeping profits bottled up as of late, but with sales continuing to rise in the high single digits to low double digits, management should be able to turn things around. It put its money where its mouth is and launched a $250 million share-repurchase program and promptly used up nearly half of that during the second quarter of 2019 alone. Paired with a 2.1% annual dividend yield, it all adds up to a solid pick within the restaurant space.

The most important attribute, though, is the dividend increase. As Roadhouse continues to manage profitable expansion, it has been quick to increase its payout. The dividend was initiated at $0.08 a share back in 2011 but now sits at $0.30 per share every quarter. Free cash flow (basic profits from which dividends are paid) has nearly doubled the last three years alone, giving ample room for the steakhouse to keep opening new locations and keep the paychecks rolling. With a decent current yield and a good chance for it to move even higher, Texas Roadhouse looks like a great addition to retiree portfolios.

A couple sitting on a dock overlooking a lake, watching a sunset.

Image source: Getty Images.

The most dependable dividend payer you've never heard of

Anders Bylund (AVX Corporation): This maker of electronic components offers a generous 2.9% dividend yield today, paid up entirely through free cash flows. In fact, AVX supported its dividend checks with just 75% of its cash flows over the last four quarters, leaving it comfortable room for dividend boosts.

As an integrated part of the massive Kyocera conglomeration, AVX comes with a squeaky-clean balance sheet. The company held more than $780 million of cash equivalents and zero debt as of the end of June. It's been more than a decade since AVX last carried any long-term debt at all.

Furthermore, AVX has managed to deliver 46% revenue growth over the last three years even though its chief clients include car companies and electronics specialists operating in China. Steady revenue growth is an impressive feat, given the unstable nature of trade relations between China and America. AVX CEO John Jarvis expects revenue growth to accelerate in the second half of 2019 as the international trade tension inches toward some sort of resolution.

So AVX gives you a solid dividend with room for growth, supported by a resilient business model and an immaculate balance sheet. What's not to love?

A dividend growth stock that pays you every month

Neha Chamaria (Realty Income): Realty Income yields a decent 3.9%, but that's not the only thing about the stock that should attract a retiree. As a real estate investment trust (REIT), Realty Income is required to pass 90% or more of its taxable income to shareholders in the form of dividends. What that has meant for shareholders so far is 86 consecutive quarters of dividend increases at a compound annual growth rate of 4.6%. Moreover, the company pays a dividend every month and, in fact, has done so for 50 years now. Those dividends, when reinvested, have meant manifold returns for patient investors.

So what's behind Realty Income's strong dividend streak? As a REIT, the company purchases real estate and leases it out under long-term agreements. Realty Income currently owns more than 5,000 commercial properties rented out to nearly 260 tenants. Realty Income primarily deals in retail, but the majority of its tenants offer nondiscretionary goods and services, such as dollar stores, convenience stores, and drugstores. That offers predictability in cash flows and, therefore, in dividends.

Realty Income has consistently maintained occupancy levels above 98%, and most of its leases are for 10 to 20 years. That reflects the company's strong portfolio, which should help it continue to churn out strong earnings and dividends that retirees can bank on.

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Stocks Mentioned

Realty Income Corporation Stock Quote
Realty Income Corporation
O
$68.26 (-1.59%) $-1.10
AVX Corporation Stock Quote
AVX Corporation
AVX
Texas Roadhouse, Inc. Stock Quote
Texas Roadhouse, Inc.
TXRH
$73.20 (-1.35%) $-1.00

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

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