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3 Stocks to Bankroll Your Retirement

By Matthew DiLallo - Updated Feb 10, 2020 at 8:26AM

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These companies generate a lot of cash, which gives them the money to pay sustainable high-yielding dividends.

One thing most retirees want is an income stream that will last through their golden years. Some will get all they need from a pension plan. Others, however, need to supplement their retirement income with additional sources. Among their options is to own a portfolio of dividend-paying stocks.

While not all dividends are ideal for retirement since sustainability is more important than size, several excellent options are available. Three top ones to consider are natural gas pipeline giant Kinder Morgan (KMI -1.11%)utility Duke Energy (DUK 0.59%), and renewable-energy company Brookfield Renewable Partners (BEP -1.60%).

A money bag with the word dividends written on it.

Image source: Getty Images.

A bankable dividend

Kinder Morgan generates an enormous amount of cash each year by collecting fees as natural gas flows through its various pipeline systems. In 2019, the pipeline company hauled in almost $5 billion in cash. That number should reach $5.1 billion this year thanks to a boost from recently completed expansion projects.   

The company expects to return about $2.8 billion of that money to investors this year through its dividend, a 25% increase from last year's level on a per-share basis. Given the company's recent stock price, the payout has an implied yield of nearly 6%, which is well above average.

That high yield is on rock-solid ground, given Kinder Morgan's low payout ratio of about 55%. For comparison's sake, most pipeline companies are comfortable with payout ratios between 65% to 80% of their cash flow. Kinder Morgan further compliments its conservative financial profile with a strong balance sheet, giving the company the financial flexibility to continue investing in expansion projects, which should enable it to keep increasing its dividend in the coming years.

A steady grower

Duke Energy is one of the nation's largest owners of energy infrastructure. The company operates both electric and gas utilities and a large commercial renewable-energy business, which all generate predictable earnings backed by long-term contracts or regulated rates. It also accordingly produces lots of cash, which it uses to support its 3.9%-yielding dividend. 

Duke retains about 25% of its earnings to reinvest in the expansion of its utility and renewable energy businesses. While that's slightly less than the utility average of around 30%, the company has a strong balance sheet to help bridge the gap. Those sources give it the financial flexibility to support its plan to invest $37.5 billion into expanding its operations through 2023, which should drive 4% to 6% annual earnings growth on a per-share basis. That should give it the power to continue increasing its dividend, making it a very bankable payout for retirees.  

Making green by going green

Brookfield Renewable Partners operates one of the world's largest renewable-energy businesses, which includes hydroelectric, wind, solar, and energy storage operations. These assets generate lots of cash because the company sells the power they produce under long-term, fixed-priced contracts with utilities and other end users. The company currently returns about 90% of that cash flow to investors through a payout that yields 3.8%. 

While that's a high payout percentage -- and above the company's long-term target of 70% -- it can afford that level thanks to its balance sheet, which is one of the strongest in the renewable-energy sector. Furthermore, the company typically finances growth by selling mature assets and recycling that capital into higher-returning opportunities. Last year, for example, it raised $365 million via asset sales, which gave it most of the cash it needed to finance $550 million worth of growth-focused investments. Meanwhile, it ended the year with about $2.7 billion of financial flexibility, which gives it the funds needed to continue expanding. On top of that, it's currently working on a needle-moving deal using its highly valued stock to accelerate its growth rate. 

In the company's view, it can grow its cash flow at a double-digit annual rate over the next five years, which will give it plenty of power to continue increasing its payout.

Great income stocks for retirees

All three of these energy companies generate highly predictable revenue backed by fee-based contracts or regulated rates, so they have the consistent cash flow needed to support sustainable dividends. Add in their strong balance sheets, and these are very bankable payouts for retirees.  

Matthew DiLallo owns shares of Brookfield Renewable Partners L.P. and Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Kinder Morgan, Inc. Stock Quote
Kinder Morgan, Inc.
KMI
$18.72 (-1.11%) $0.21
Duke Energy Corporation Stock Quote
Duke Energy Corporation
DUK
$113.24 (0.59%) $0.66
Brookfield Renewable Partners L.P. Stock Quote
Brookfield Renewable Partners L.P.
BEP
$38.74 (-1.60%) $0.63

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

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