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3 Top Dividend Stocks for a Better Retirement

By Matthew DiLallo – Apr 12, 2020 at 11:15AM

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These three stocks can energize the income flowing into your retirement account.

Dividend-paying stocks can provide retirees with an additional income stream to supplement other sources, like a pension plan and Social Security. That extra cash flow can help boost a retiree's standard of living, making retirement more enjoyable.

While lots of companies pay dividends, not all of them will endure. Three stocks, however, that stand out for paying durable dividends are water utility American Water Works (AWK 1.62%)renewable energy generator Brookfield Renewable Partners (BEP 0.84%), and Canadian pipeline giant TC Energy (TRP 2.45%). That makes them excellent options for retirement-minded investors. 

A jar of coins with the word dividends written on the front.

Image source: Getty Images.

A stable cash flow stream

American Water Works is the country's largest publicly traded water and wastewater utility. The company provides those services to roughly 15 million people across 46 states, and the business generates relatively steady income supported by regulated rates and stable demand in good times and bad. 

American Water Works typically pays out between 50% and 60% of its cash flow through its dividend, which currently yields around 1.6%. It further supports that payout with one of the best balance sheets in the utility sector. That strong financial profile gives it the flexibility to grow its water utilities through organic expansion projects and acquisitions. In the company's view, it can invest between $8.8 billion and $9.4 billion on expansions through 2024, which should support 7% to 10% annual earnings growth and similar yearly increases in its dividend. That steadily rising income stream makes American Water Works an attractive option for retirees who want to grow their standard of living.

A high-powered dividend

Brookfield Renewable Partners is one of the world's largest publicly traded renewable energy platforms. Its operations span the globe and include hydroelectric, wind, solar, and energy storage facilities. These assets generate predictable income backed by long-term, fixed-rate power purchase agreements with utilities and other end users.

Brookfield Renewable aims to distribute about 70% of its annual cash flow to investors through a payout that currently yields around 4.4%. The company uses the cash it retains, as well as its top-tier balance sheet, to expand its renewable energy portfolio. In Brookfield's view, it has the financial resources to invest $4 billion to grow its operations through 2024. That investment rate should support 9% to 16% annual growth in its cash flow, which will give it the power to increase its distribution by 5% to 9% per year. That high-powered growth positions Brookfield to generate above-average total returns, which could boost the fortunes of retirees.

An enduring dividend

TC Energy is one of the largest energy infrastructure companies in North America. It operates natural gas pipelines in the U.S., Mexico, and its home country of Canada. It also owns oil pipelines and a clean-energy-focused electricity-generating business. The bulk of its assets produce predictable cash flow backed by long-term contracts or regulated rates.

TC Energy typically pays out about 40% of its cash flow through its dividend, which currently yields around 5%. It uses the money it retains as well as its top-tier balance sheet to expand its infrastructure network. The company currently has enough expansions projects under construction to support 8% to 10% dividend growth through 2021. Meanwhile, it anticipates having the fuel to increase its payout at a 5% to 7% annual rate after that, supported by one of the largest growth project backlogs in the pipeline sector.

Safe payouts that should provide a growing income stream

All three of these dividend payers have conservative financial profiles, which includes lower-than-average payout ratios for their sectors and strong balance sheets. That provides them with a cushion to get through tough times so they can continue growing their earnings and dividends in the years ahead. And that makes them excellent income stocks for retirement-focused investors to consider.

Matthew DiLallo owns shares of Brookfield Renewable Partners L.P. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

TC Energy Corporation Stock Quote
TC Energy Corporation
TRP
$43.45 (2.45%) $1.04
American Water Works Company, Inc. Stock Quote
American Water Works Company, Inc.
AWK
$136.52 (1.62%) $2.17
Brookfield Renewable Partners L.P. Stock Quote
Brookfield Renewable Partners L.P.
BEP
$32.31 (0.84%) $0.27

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

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