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3 Dividend Stocks That Are Perfect for Retirement

By Matthew DiLallo – Updated Apr 25, 2020 at 11:15AM

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These companies built their dividends to endure.

Dividends can be a great way to supplement other retirement income sources like Social Security and a pension plan. These payments, which companies usually distribute quarterly, often grow at a faster rate than inflation. That makes them ideal sources of income, as they can help offset rising retirement expenses.

While dividend payments aren't as secure as other retirement income sources -- several companies have cut or reduced them because of how much the COVID-19 outbreak affected their operations -- many are durable enough to endure tough times. That makes them perfect options for retirement. Three such dividend stocks are Brookfield Infrastructure (BIP 2.23%) (BIPC 2.38%)NextEra Energy (NEE 3.55%), and Kinder Morgan (KMI 2.76%).

$100 bills with the word dividend on top.

Image source: Getty Images.

Built for times like these

Brookfield Infrastructure operates a diversified portfolio of global businesses, including utilities, energy, transportation, and data infrastructure. Many of these entities are very recession-resistant. While the volumes flowing through its ports and toll roads suffer during a downturn, most others generate contractually protected cash flows. In Brookfield's estimation, a global recession would only affect its cash flow by about 5%.

The company complements its steady cash flow with a conservative dividend payout ratio and a top-notch balance sheet with lots of liquidity. Those factors put Brookfield's 5.6%-yielding dividend on a firm foundation. Meanwhile, its financial flexibility gives it the ability to make investments to grow its operations. The company has a knack for taking advantage of tough times to score needle-moving deals that provide fuel to grow the dividend. Those factors make it an excellent retirement holding.

Completely immune to COVID-19

NextEra Energy, which operates utilities and a renewable energy business, has quite the recession-proof operation. That was abundantly clear in its recent first quarter report. Not only did it deliver healthy earnings growth during the period, but it also reaffirmed its outlook that earnings will grow by 6% to 8% per year through 2022. In its view, results will likely come in at or near the top end of that range.

Add that forecast to the fact that NextEra Energy has one of the best balance sheets in the utility sector and a lower-than-average payout ratio, and its 2.3%-yielding dividend is on rock-solid ground. Because of that, NextEra plans to increase its payout by 10% per year through at least 2022. That high-powered growth from such a low-risk stock makes it an ideal option for a retiree.

Plenty of cushion to weather even the toughest storm

Kinder Morgan operates one of the leading energy infrastructure businesses in the U.S. Most of these assets generate stable cash flow backed by take-or-pay contracts, which guarantee Kinder Morgan a payment even if customers don't use their allotted capacity. This contract structure provides the company with durable cash flow.

These agreements are helping Kinder Morgan cushion the blow from the downturn in the energy market. While it's not immune -- cash flow is on track to be about 10% below its initial budget -- it's holding up better than most in the sector. Because of that, Kinder Morgan was recently able to provide investors with another dividend increase, pushing its yield well over 7%. On the one hand, that 5% raise was well below the 25% boost it initially promised. However, that's because it wants to be extra cautious during the current uncertainty in the energy market. Once conditions improve, Kinder Morgan expects to provide investors with the rest of its planned raise.

The strength to endure

Brookfield Infrastructure, Kinder Morgan, and NextEra Energy all generate relatively stable cash flows thanks to long-term fixed-price contracts and government-regulated rates. Add that to their strong balance sheets and conservative dividend payout ratios, and they pay very durable dividends. That makes them ideal stocks for retirees who are looking for a payout that can last their lifetime.

Matthew DiLallo owns shares of Brookfield Infrastructure, Brookfield Infrastructure Partners, Kinder Morgan, and NextEra Energy. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool recommends Brookfield Infrastructure, Brookfield Infrastructure Partners, and NextEra Energy. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Kinder Morgan, Inc. Stock Quote
Kinder Morgan, Inc.
$17.10 (2.76%) $0.46
NextEra Energy, Inc. Stock Quote
NextEra Energy, Inc.
$81.19 (3.55%) $2.78
Brookfield Infrastructure Partners L.P. Stock Quote
Brookfield Infrastructure Partners L.P.
$36.70 (2.23%) $0.80
Brookfield Infrastructure Corporation Stock Quote
Brookfield Infrastructure Corporation
$41.67 (2.38%) $0.97

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

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