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3 Dividend Stocks Perfect for Retirees

By Rich Duprey, Jeremy Bowman, and John Bromels – Updated Aug 19, 2019 at 5:08PM

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Royal Dutch Shell, Costco, and McDonald's provide excellent opportunities for income-seeking retirees.

Investing in your retirement years is different from when you were in your prime wage-earning years. Retirees need to be a bit more circumspect about the risks they take, which should be decidedly minimal, and their investments should provide a bit of income, too.

We asked three Motley Fool contributors to identify three dividend stocks retirees should consider for their portfolios, and they said Royal Dutch Shell (RDS.A) (RDS.B), Costco (COST -4.26%), and McDonald's (MCD -0.80%) would be perfect for an income-seeking, risk-adverse portfolio.

Smiling older couple looking at a laptop

Image source: Getty Images.

A dependable dividend

John Bromels (Royal Dutch Shell): Perhaps the biggest consideration for retirees looking for dividend income isn't the size of the yield, but its reliability. After all, that giant 10% yielder may look great at first, but if it suddenly slashes its dividend after only a few quarters, that's a sudden and painful drop in your income.

Luckily, oil major Royal Dutch Shell has shown that it's willing to maintain its dividend in good times and in bad. The bad times for the company came between 2014 and 2017, during the big oil price downturn, when crude prices dropped from more than $100/barrel to less than $30/barrel before slowly creeping upwards. Yet, even as its share price sank, Shell maintained its dividend. That kind of reliability is deserving of a place in a retirement portfolio.

Of course, if the dividend had been paltry, it would have been easy for Shell to continue to offer it, but that isn't the case here. Shell's dividend yield is currently an industry-leading 6.8%. And considering its shares currently trade at just over 11 times earnings, the price is right, too. 

Shell looks like a solid bet for retirees craving a reliable payout in their golden years.

A rock-solid retailer

Jeremy Bowman (Costco): It's no secret that the retail sector is struggling. Department store and mall-based chain stocks have tumbled amid a massive upheaval in the industry that has made e-commerce king. But not all brick-and-mortar chains are in trouble. In fact, some are downright thriving.

Witness Costco Wholesale, the warehouse retail giant with no true peer in its category that continues to put up impressive growth despite threats from Amazon and others.

Costco may not be an obvious choice as a dividend stock since its yield is just a paltry 1%. However, investors who follow the stock know that Costco has made a habit of paying generous special dividends every two or three years since 2012. The last one of those came in May 2017, when the company ponied up $7 per share, so it looks like investors are due for another reward.

Management has played coy about another special dividend, but the stock and the company are both thriving, so it would seem odd for management to break a now-established pattern.

Even without the special payout, Costco is a better dividend stock than it looks as it has raised its quarterly payout by 10% or more every year since it first began paying a dividend in 2004. That kind of dividend growth track record is hard to beat. 

Retirees who grab a piece of the stock today can look forward to the likely special dividend coming down the pike as well as double-digit dividend growth as long as Costco's own growth continues. And if you're anything like my retired dad, you already love going to Costco, so now you can check in on your investment next time you stop in to grab some free samples.

A dividend-paying stalwart

Rich Duprey (McDonald's): Burger giant McDonald's makes for a great retiree stock not just because it provides tasty food at a good price, but because it pays a dividend that currently yields 2.1% that has been increased for 43 consecutive years.

Investors looking for stocks for their retirement years should seek out stable businesses that offer consistency and durability. McDonald's passes with flying colors on all three qualifications, having steadily and systematically grown its business for decades through all kinds of market and economic conditions.

Although the burger joint has on occasion run off the rails, such as when it pursued millennial consumers who were switching away from processed foods for more healthy fare, leading to the sustained loss of some half-billion customers, it has since gotten itself back on track. McDonald's now focuses on its core customers and has been rewarded with growing sales and comps.

Store traffic is still depressed, but the Golden Arches is introducing more technology into its operations to quicken service and improve the customer experience. That should eventually result in more customers coming to its restaurants and boosting profitability for franchisees.

McDonald's is a stock retirees should feel comfortable owning throughout their golden years.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman owns shares of Amazon. John Bromels owns shares of Amazon and Costco Wholesale. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has the following options: short January 2020 $180 calls on Costco Wholesale and long January 2020 $115 calls on Costco Wholesale. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
$245.95 (-0.80%) $-1.99
Royal Dutch Shell plc Stock Quote
Royal Dutch Shell plc
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
$466.40 (-4.26%) $-20.77
Royal Dutch Shell plc Stock Quote
Royal Dutch Shell plc
RDS.B, Inc. Stock Quote, Inc.
$113.78 (-3.01%) $-3.53

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

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