Americans are living longer and healthier lives. If you're a 62-year-old male, there's a 50% chance you'll live to see the year 2040. For women, add three years to that number, and for couples, there a one-in-four chance of one person living to be 95. These, of course, are averages and life expectancy numbers could improve with healthier and more social lifestyles. Given that many retirees still have several decades of retirement ahead, relying solely on stocks with high dividend yields may not be the best approach for everyone.
Stocks that can provide a stable dividend and a solid component of growth could be a great option for a portion of your retirement portfolio. Let's take a look at seven companies that meet these criteria across three different industries -- retail, financials, and technology.
Retail: Brick-and-mortar stalwarts are adapting to a new normal
Three brick-and-mortar retailers that have not only been weathering the coronavirus pandemic, but have survived the advances of e-commerce giant Amazon for years, are Home Depot (HD +0.43%), Tractor Supply Company (TSCO 0.92%), and Target (TGT +1.40%). These stellar operators have been building robust online shopping experiences for customers along with creating an "omnichannel" experience that takes advantage of their brick-and-mortar infrastructure.
Image source: Getty Images.
With 40% of homes in America more than 50 years old, Home Depot has a bright future supplying both professionals and do-it-yourselfers with tools and supplies to maintain or remodel the places we call home. Tractor Supply's store services are being enhanced as management adapts to better serve its loyal following of rural farmer and rancher customers during the coronavirus. Lastly, Target's digital business is seeing a huge uptick in usage as customers look to this essential retailer for food and everyday supplies.
|
Metrics |
Years of increasing dividends |
Dividend yield |
Payout ratio |
Three-year stock growth (without dividends) |
|---|---|---|---|---|
|
Home Depot |
11 |
2.2% |
55% |
62% |
|
Tractor Supply |
10 |
1.1% |
30% |
120% |
|
Target |
52 |
2.2% |
49% |
119% |
Data source: dripinvesting.org and Yahoo! Finance. Table by the author.
These retailers have quickly adapted to a new normal and are set to thrive as people get back to work and the economy picks up again. With a decade or more of increasing dividends, healthy payout ratios, and a nice run of stock growth, these retailers could be a nice addition to a diversified retiree's portfolio.
Financials: Cash is no longer cool
Visa (V +0.64%) and Mastercard (MA +0.90%) customers have over 5.5 billion credit and debit cards with these two company logos on them. Last year, those customers swiped their cards over 800 million times per day to purchase a whopping $13 trillion in goods and services. Both these digital payment powerhouses have built multi-billion dollar businesses by taking a small cut of every transaction. Visa is larger with $23.0 billion in trailing-12-month revenues compared to Mastercard's $16.3 billion. But Mastercard is growing annual revenues faster at 17% currency-neutral growth versus Visa's 13% for its fiscal year ending Sept. 30, 2019.
|
Metrics |
Years of increasing dividends |
Dividend yield |
Payout ratio |
Three-year stock growth (without dividends) |
|---|---|---|---|---|
|
Mastercard |
9 |
0.4% |
55% |
145% |
|
Visa |
10 |
1.1% |
20% |
104% |
Data source: dripinvesting.org and Yahoo! Finance. Table by author.
Although these two dividend yields aren't awesome, they make up for it with a trend of increasing payouts and solid stock growth. As the trend of contactless payments e-commerce accelerates due to the coronavirus, these two massive payment processors will expand their reach and grow even bigger in the years to come.
Technology: High tech doesn't necessarily mean high risk
There probably isn't anyone who hasn't heard of tech giants Microsoft (MSFT +2.27%) or Apple (AAPL 0.17%). But what you might not know is that these two have been paying dividends for more than nine years. Founded over 40 years ago, these tech specialists have grown to be cash-generating machines. Microsoft's software business has $130 billion in trailing-12-month revenues and generated $52 billion in operating cash flow over that same period. Apple's iPhones, Mac computers, and massive software and services business has $260 billion in trailing-12-month revenues and generates over $69 billion in annual operating cash flow.
|
Metrics |
Years of increasing dividends |
Dividend yield |
Payout ratio |
Three-year stock growth (without dividends) |
|---|---|---|---|---|
|
Apple |
9 |
0.9% |
24% |
109% |
|
Microsoft |
18 |
1% |
32% |
158% |
Data source: dripinvesting.org and Yahoo! Finance. Table by author.
These tech companies are anything but risky, with low payout ratios, a long history of increasing dividends, and a solid stock growth trend. These popular companies will continue to benefit as technology becomes even more of a fixture in our lives.
The dividend yield isn't the only thing
If the sub-2.5% dividend yields are souring you on these quality operators, let's look at a chart that might change your mind. Over the last three years, not only have the stock prices climbed, the dividends have too, growing between 6% and 82%. These gains increase the leverage of your original investment, providing retirees with more cash every year.
MA Dividend data by YCharts
The future looks bright for these well-run companies with growing dividends and ever-expanding business that drives long-term stock growth. If your investing horizon is a decade or more, you might consider adding some or all of these stocks to your portfolio -- it might just help you add some years to the life of your portfolio.
