As a retiree, your primary goal is to set up safe, steady, and secure income streams that can not only cover your living expenses comfortably but also provide a buffer for emergencies. Investing in stocks is a proven retirement strategy that can make your money work for you. Dividend growth stocks, in particular, are among the best you could own in retirement. The three stocks discussed below are well poised to earn you the income you'll require to fully enjoy your golden years.
An overlooked industry with solid potential
Real estate investment trusts, or REITs, are great for a retiree's portfolio for two reasons. First, REITs allow you to invest in real estate without having to bear the costs and risks associated with owning and maintaining actual property. Second, they can earn you regular, oft-rising dividend income year after year simply because a REIT is required to pay at least 90% of its taxable income as dividends to shareholders.
Consider Public Storage (PSA 1.24%), the world's largest owner and operator of self-storage facilities. After increasing its dividend every year between 2007 and 2017, the company has paid a steady quarterly dividend of $2.00 per share since 2017. The stock yields 3.5% today.
People generally use self-storage out of necessity -- say, when renovating the home or moving out. The industry has thus proven to be pretty resilient through economic cycles. Public Storage, for example, generated flat revenue worth around $2 billion during the nine months ended Sept. 30, 2020, even in an exceptionally challenging year because of the COVID-19 pandemic. The company's revenue and net income have grown steadily in the past decade to regular dividends, which have added significantly to the stock's total return.
Public Storage is in the process of acquiring 36 properties with 3.6 million net rentable square feet for $528 million. As of Sept. 30, Public Storage owned nearly 2,500 facilities. Opportunities are aplenty, what with industry experts pegging the self-storage market to grow at a compound annual growth rate of more than 100% between 2020 and 2025. As the industry leader with a strong balance sheet, Public Storage should be able to exploit the opportunities, grow its cash flows, and ensure steady income flow for retirees.
A safe, reliable bet in retirement
Procter & Gamble (PG -0.39%) is an incredible retiree stock for several reasons: It's a leader in the noncyclical consumer staples industry, boasts a strong operational performance record, and is a Dividend King, or a company that has increased dividends every year for at least 50 years.
P&G has been in business for more than 180 years, sells products across 180 countries, generated $71.1 billion in sales in the year ended June 30, 2020, and has raised its dividend every year for the past 64 consecutive years. That's one heck of a dividend streak, and steady cash flow growth at P&G made it possible. Credit largely goes to the company's massive portfolio of 65 globally renowned, ubiquitous brands like Tide, Pampers, Crest, Bounty, and Heads & Shoulders, to name a few.
Interestingly, P&G's brand count was much higher until around five years ago when it decided to divest underperforming products and streamline its portfolio. The restructuring has made P&G stronger than ever. This fiscal year, P&G expects earnings per share to grow between 4% and 9% and plans to return $15 billion to $17 billion in cash to shareholders in the form of dividends and share buybacks. That reaffirms management's commitment to shareholders, making this 2.3%-yielding stock a great addition to your retirement portfolio.
The near-perfect retiree stock
Most retirement portfolios own a utility stock, and for good reason: Utility stocks are recession-proof and can most pay out steady and regular dividends. If you don't already own it, give Duke Energy (DUK 0.10%) serious thought.
Duke Energy has increased its dividend for 14 consecutive years and yields 4.3% currently. Growing dividends have made a big difference to Duke stock's total returns in the past, and should continue to do so given the company's growth plans.
Duke plans to invest $58 billion through 2024 to modernize and upgrade its infrastructure, with particular emphasis on clean energy. The program should help Duke win approval for timely rate increases from state regulators, which could drive its earnings per share up by 4% to 6% off its 2021 base in the long run. I expect dividends to grow in line with earnings, so that should support Duke's high yield in coming years. Steady dividend growth will combine with a sustainable high dividend yield from a defensive stock -- exactly the kind of mix a retiree should seek in a stock.