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3 Dividend Stocks to Bankroll Your Retirement

By Rich Smith - Mar 20, 2020 at 8:00AM

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Each of these stocks pays more than twice the average dividend -- and is cheaper than the average stock.

It's been a wild couple of weeks in the market, with stocks falling left and right, and the P/E ratio on the S&P 500 falling from a pricey 25 to a much more accessible 18 (as of the close of trading Monday).

No one likes seeing their stocks go down -- especially when you're on the cusp of retiring. But there is a bright side to all this doom and gloom in the markets: Because dividend yields are calculated by dividing a stock's constant-dollar dividend amount by its stock price, assuming constant dividend payments, a smaller stock price means significantly larger dividend yields. Thanks to this dynamic, the average dividend yield on the S&P has already shot up from less than 1.9% to nearly 2.2%.

If you're looking to buy a dividend stock (or three) to bankroll your retirement, this is very good news. Here are three possibilities to consider: Anheuser-Busch Inbev (BUD 2.37%), Hasbro (HAS 3.23%), and Citigroup (C 3.26%).

Older gentleman in a vest typing on a calculator and working some numbers on a computer

Image source: Getty Images.

1. Anheuser-Busch Inbev: Pouring out a 5.4% dividend yield

After a week as rough as last week was (and this week looks to become), we could all use an ice-cold, refreshing beverage to help ease our worries. But if you're looking to retire in the next few years, buying stock in Anheuser-Busch (rather than their products) could be an even more attractive option -- as a source of dividend income.

As high as the average dividend yield on S&P 500 stocks has already risen, Anheuser-Busch still remains the king of dividends, paying its shareholders a massive 5.4% yield that's more than twice the market average. What's more, with a dividend payout ratio of only 55%, this is a dividend that Anheuser-Busch can more than afford to maintain, even if for some reason you imagine that coronavirus stress will cause folks to drink less, not more, in the coming days.  

Nor is the dividend the only reason to buy shares of Anheuser-Busch right now. Thanks to the steep sell-off, Anheuser-Busch shares currently trade for a low 8.6 times trailing income -- less than half the average price-to-earnings ratio on the S&P. Despite the cheap price, analysts who follow the stock believe Anheuser-Busch is fully capable of growing its earnings (and therefore its dividend) at nearly 11% annually over the next five years -- even faster the average growth rate of other companies on the index.

With a cheap stock price, very respectable growth, and a can't-be-beat dividend to recommend it, the right time to buy Anheuser-Busch stock is now.

2. Hasbro: Toying with a 6.1% dividend yield

Looking for a stock to both pay for your retirement, and give you something to tell the grandkids when visiting during your retirement? Look no further than Hasbro, the undisputed king of toymakers.

Boasting $4.7 billion in annual sales, Hasbro isn't all that much bigger than its name-brand rival Mattel (MAT 4.40%). Yet Hasbro is earning an 11% net profit margin on its sales, while Mattel is still losing money. It's these super-strong profits that permit Hasbro to pay its shareholders a robust 6.1% dividend yield (with a 66% payout ratio), while Mattel cannot afford to pay any dividend at all.  

Admittedly, one of the reasons Hasbro's dividend yield looks so rich today is because its stock has fallen so hard in recent weeks. Given that fact, investors may be leery of investing in Hasbro now, lest it fall even more. And yes -- that could happen. But when you consider that Hasbro stock only costs about 11.2 times earnings today, I'd argue that there's a limit to how much cheaper Hasbro can become from this point on. (And course, if it does manage to fall more, that would mean even bigger dividend yields to come.)

Come to think of it, Hasbro looks to have every chance of growing its dividend even if its stock rises rather than falls, and the reason for that is, again, the growth rate. It's an even faster grower than Anheuser-Busch. Analysts peg Hasbro's long-term growth rate at nearly 14%, giving the stock a low, low price-to-earnings-growth (PEG) ratio of just 0.8.

When you consider that most value investors consider a PEG of below 1.0 prima facie evidence that a stock is a bargain, I'd argue Hasbro isn't just a great dividend stock. It's a pretty great value stock, too.

3. Citigroup: Banking on a 5% dividend yield

Last but not least, Citigroup. (Yes, the investment bank. In a tumbling market like this one, even the greatest names are starting to go on deep-discount sale).

Priced at a ridiculously low five times trailing earnings, Citigroup has been all but done in by the stock market crash this month. But Citigroup's loss can now be your gain. Even this stingiest stock on today's list pays a market-crushing 5% dividend yield today. And with Citigroup's dividend payout ratio below 24%, Citi is arguably the stock most certain to be able to not just maintain its dividend payments through thick and thin, but to even grow its payout as its earnings grow.

And believe it or not, Citigroup's earnings are expected to grow -- perhaps not immediately, now that we're facing the prospect of a recession coming up. But eventually, analysts expect Citi to return to a path of strong earnings growth and expand its profits at a brisk 13% annual clip over the next five years. This will give buyers the chance to grab a great dividend yield for retirement today, and then watch it grow even greater in the years to come.

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Stocks Mentioned

Citigroup Inc. Stock Quote
Citigroup Inc.
$47.86 (3.26%) $1.51
Anheuser-Busch InBev SA/NV Stock Quote
Anheuser-Busch InBev SA/NV
$53.94 (2.37%) $1.25
Hasbro, Inc. Stock Quote
Hasbro, Inc.
$85.74 (3.23%) $2.68
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,911.74 (3.06%) $116.01
Mattel, Inc. Stock Quote
Mattel, Inc.
$23.50 (4.40%) $0.99

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

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