Dividend stocks are a great option for a retirement account since you're earning income simply for holding shares. But not just any dividend-paying stock will do. The coronavirus pandemic caused many companies to cut or cancel dividends. It's more important than ever to select stocks with a secure payout.
To do that, you need to find companies with the staying power to survive tough economic times while possessing the capacity to continue paying dividends. While other businesses saw substantial revenue declines from the current economic slowdown, there were at least three that delivered revenue and dividend increases in these tough economic times.
That's just the start of why these three companies are worthy stocks for inclusion in your retirement portfolio.
Image source: Getty Images.
1. Apple: 1.04% dividend yield
For a company that can survive downturns and even the loss of its iconic founder and CEO, Steve Jobs, look no further than Apple (AAPL +2.66%). The company relies on Chinese manufacturing for its products, yet weathered the trade war with China and now the economic slowdown from the pandemic.
Apple experienced a modest 1% year-over-year revenue increase in its second quarter, which ended March 28. Given that the company's well-known iPhone and Mac products saw revenue declines as the pandemic disrupted supply chains and caused product shortages, the growth is impressive.
Its services division helped fuel that growth with an all-time high of $13.3 billion in revenue, up 17% year over year. This segment includes the App Store, iCloud cloud storage, and its extended warranty program.
As I highlighted in April, Apple's services segment is one of the company's strengths. It produces year-round income through a combination of revenue models, including subscriptions from offerings such as iCloud and commissions from the sale of apps through the App Store.
The company raised dividend payments by 6% on April 30. Its business routinely generates a large amount of cash, so it's well-positioned to sustain the dividend. It had $40.2 billion in cash and equivalents while paying out $6.9 billion in dividends in its second quarter. With a payout ratio of 25.8%, Apple can easily maintain its dividend while having income to invest back into continued growth.
2. Johnson & Johnson: 2.75% dividend yield
As a healthcare giant, Johnson & Johnson (JNJ +0.60%) is uniquely positioned to not only weather the coronavirus pandemic but to also fight it through the development of a vaccine. It's also an excellent choice for a retirement stock given its century-plus history and consistent revenue growth over time.
JNJ Revenue (Annual) data by YCharts.
Three segments power Johnson & Johnson's performance. Its consumer products, such as Tylenol, are well known, but the company generated $11.1 billion in the first quarter of 2020 from its pharmaceuticals division, making up more than half of the quarter's $20.7 billion in revenue. Its diversified healthcare business also includes a medical devices division, which brought in $5.9 billion.
The company announced a 6.3% increase in its dividend on April 14, the 58th consecutive year of increases (firmly placing it in the select list of Dividend Kings). Johnson & Johnson generated $18.1 billion in cash and marketable securities in Q1, which comfortably covered the $2.5 billion in dividends to shareholders. With a payout ratio of 63%, the company can maintain its dividend. Its proven performance and diversified business provide stability to investment portfolios, making Johnson & Johnson shares worthwhile for your retirement account.
3. Walmart: 1.73% dividend yield
Another stock for investment peace of mind is Walmart (WMT +0.39%). The company reported first-quarter earnings for fiscal 2021 on May 19, and despite many retailers suffering from reduced in-store traffic, revenue rose 8.6% year over year. The key U.S. market delivered $88.7 billion in sales, compared with $29.8 billion internationally.
As a consumer staples company, Walmart enjoys some insulation from declines in the economy. That, combined with a 74% rise in year-over-year U.S. e-commerce sales, propelled its first-quarter success. Investments in e-commerce proved prescient and will help sustain the company for years to come.
Walmart is also a Dividend Aristocrat. In February, the company raised its dividend for the 47th consecutive year. Its payout ratio of 41.6% means it can support the dividend, and is likely to continue increasing it over the next few years since the company is three years away from reaching Dividend King status.
Like the others on this list, Walmart is a solid company with cash-generating power. Its $14.9 billion in cash and equivalents at the end of its first quarter was up from $9.5 billion in the previous quarter and $9.3 billion a year ago. Walmart is well-positioned not just to weather the pandemic but also to provide stability to your retirement portfolio.
