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3 Dividend Stocks That Are Perfect for Retirement

By Robert Izquierdo - May 27, 2020 at 8:08AM

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These companies provide reliable dividend income for your retirement account even during tough economic times.

The key to dividend stocks for a retirement portfolio is finding companies with longevity. A dividend is only as good as the company's ability to keep paying it over time.

The novel coronavirus pandemic-induced economic downturn resulted in the reduction or outright cancellation of dividends from companies across industries, such as airlines and entertainment. So how can you find businesses capable of weathering even the worst of economic declines?

Look no further than these three companies. Each has the staying power to provide dividends even during tough economic times -- we've listed each company's five-year average dividend yield as of May 2020 below, though current yields may be higher or lower -- and each may be perfect for a retirement account.

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Verizon Communications: 4.5% average dividend yield

Because people rely on telecommunications to stay connected now more than ever, Verizon Communications (VZ -0.37%) serves as a stable stock for a retirement account. That telecom dependency translated to an increase in revenue for Verizon's wireless services division to $16.4 billion in the first quarter, up from last year's $16.1 billion, despite the economic slowdown.

Verizon also responsibly manages its financial health. It quickly reacted to the blunting of global economies, fortifying its cash position. At the end of the first quarter, the company had $7 billion in cash and equivalents, up from the previous quarter's $2.6 billion. The company's cash flow from operations stood at $8.8 billion compared to last year's $7.1 billion, handily covering its $2.5 billion in dividend payments.

Not only does its strong cash position mean Verizon can maintain its dividend, which it has raised for 13 consecutive years, but the company is also poised to continue investing in its business this year. Verizon announced an acceleration in its rollout of 5G technology, which offers faster internet speeds.

With 5G, Verizon can expand its suite of services, including home internet, and experience an increase in equipment sales as customers upgrade from 4G-enabled devices. Verizon's combination of stability as one of the largest telecom companies, the evolution of its network and offerings, and a sustainable dividend payout ratio around 55% mean the company is well positioned to provide years of dividend income for your retirement account.

Procter & Gamble: 3% average dividend yield

Procter & Gamble (PG 1.12%) delivers stability for your retirement portfolio through its consumer staples products, such as Tide detergent and Pampers diapers. Moreover, the company is focused on maximizing its profitability. In recent years, it pared down its slew of brands to focus on the most profitable, and CFO Jon Moeller indicated on the company's recent earnings call that additional "inefficient SKUs and brands" could be cut to continue improving margins and sales growth.

The company's strategy along with products consumers rely on, even in uncertain times, led to 5% year-over-year sales growth for the third quarter ended March 31. Its fundamentals look solid with year-over-year organic sales growth of 6% and gross margin rising to 49.4% over 2019's 48.8%.

Procter & Gamble has paid dividends for 130 years and is positioned to continue. It had $15.4 billion in cash and generated free cash flow of $3.3 billion in the third quarter. This easily covered its $1.9 billion in dividend payments.

In April, the company announced its 64th consecutive year of dividend increases with a 6% rise in the payment amount. With that kind of track record combined with its stable business model, Procter & Gamble is an ideal stock for retirement accounts.

McDonald's: 2.6% average dividend yield

McDonald's (MCD -0.35%) revenue model makes it a good addition to a retirement account. The company generates the majority of its revenue from charging fees to franchisees based on a percent of sales and leasing the land for restaurants. Because 93% of its nearly 39,000 worldwide locations are franchised, McDonald's avoids the costs of running these restaurants.

The advent of the coronavirus pandemic proves the company's resiliency in even the worst of times. McDonald's saw first-quarter revenue drop 6% year over year, as shelter-at-home orders and the forced closure of its dining rooms and some restaurants took its toll. 

Despite the challenges, McDonald's generated $1.5 billion in cash from operations and amassed $5.4 billion in cash and equivalents at the end of the first quarter. The company also maintained its commitment to its dividend.

McDonald's has raised dividends for 43 consecutive years since 1976. The CEO stated the company's dividend policy remains unchanged, with McDonald's announcing its latest dividend payment on May 22.

Beyond the pandemic, McDonald's is positioned to bounce back. Last year, the company modernized restaurants and added new technologies such as mobile orders and self-serve kiosks to improve the customer experience. As a result, McDonald's saw a 5.9% lift in comparable sales in 2019. When consumer behavior returns to normal, these improvements position McDonald's to continue delivering results for shareholders.

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Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
$246.88 (-0.35%) $0.86
The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
$143.79 (1.12%) $1.59
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$50.75 (-0.37%) $0.19

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

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