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3 Dividend Stocks Ideal for Retirees

By Matthew DiLallo - Oct 19, 2019 at 12:26PM

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This trio of dividend-paying stocks could energize your retirement portfolio.

Most retirees are looking for investments that will generate some low-risk income. While bonds and bank CDs can accomplish that goal, most pay unappealing yields due to lower interest rates. That's where dividend-paying stocks can come into play since some pay very attractive yields.

While those payouts often come with more risk, investors do have several less risky options. Three ideal ones for retirees to consider are pipeline giant ONEOK (OKE 1.43%), renewable energy producer TerraForm Power (TERP), and utility Duke Energy (DUK 0.23%).

A jar overflowing with cash.

Image source: Getty Images.

A high-yield dividend with a high-octane growth rate

ONEOK operates a large portfolio of midstream assets, including 38,000 miles of pipeline. The company predominantly gets paid fees as natural gas and natural gas liquids (NGLs) flow through its system, which provides it with predictable cash flow. That gives it the funds to pay an attractive dividend that currently yields 5.2%.

The company backs that payout with a conservative financial profile. Long-term contracts currently supply about 85% of the company's earnings. Meanwhile, it produces enough cash to cover its payout by a comfortable 1.4 times and has a strong investment-grade credit rating. That gives the company the financial flexibility to invest in growth projects. ONEOK currently has $6 billion of projects under construction, which has it on track to grow its earnings by 20% next year. That should give ONEOK the fuel to increase its dividend by at least a 9% annual rate through 2021.

A fully powered dividend growth plan

TerraForm Power operates a growing portfolio of wind and solar energy facilities in North America and Western Europe. The company sells nearly all the electricity those facilities produce under long-term, fixed-rate agreements to end-users like utilities and large commercial and industrial customers. Because of that, it generates predictable cash flow, which it uses to pay its 4.8%-yielding dividend.

Thanks to a needle-moving acquisition last year, TerraForm already had most of the power it needed to grow its payout at a 5% to 8% annual rate through 2022. However, that didn't stop the company from recently making another deal, which will add more power to its dividend growth plan. With the boost from that deal added to the company's rapidly improving balance sheet, it should have no problem delivering on its dividend growth plan.

Low-risk dividend growth

Utilities like Duke Energy have long been quintessential stocks for retirees looking for a low-risk income stream. That's because they generate steady earnings by distributing electric and gas to customers. They usually pay out the bulk of that money to investors via dividends, which is why they typically have higher yields. In Duke's case, it pays out between 65% to 75% of its earnings to investors, which at the current rate, has its dividend yield up to 4%.

Duke Energy has raised that payout in each of the last 13 years. The company fully expects to keep this streak going over the next few years. In its view, it can grow earnings by 4% to 6% annually through 2023 by investing $37 billion into expanding its utility base. That growing income stream should enable Duke to increase its dividend at a comparable yearly pace.

Checking all the boxes for retirees

All three of these companies offer investors well-above-average yields supported by predictable cash flow and healthy financial profiles. Even better, they all expect to expand their payouts by at least a mid-single-digit rate for the next couple of years. That combination of low-risk yield and visible growth makes them ideal stocks for retires to consider owning.


Matthew DiLallo owns shares of TerraForm Power. The Motley Fool recommends ONEOK. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Duke Energy Corporation Stock Quote
Duke Energy Corporation
$109.06 (0.23%) $0.25
ONEOK, Inc. Stock Quote
$62.26 (1.43%) $0.88
TerraForm Power Stock Quote
TerraForm Power

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