There are many different building blocks in a good retirement plan. Many workers have either an employer-sponsored plan like a 401(k), or an individual retirement account (IRA). Then there's Social Security, which most eligible recipients begin to access between the ages of 62 and 70.
But a good retirement plan often needs more than these starting points. It's also smart to have other investments, in savings vehicles like mutual funds, ETFs, and stocks, as additional building blocks to ensure you have the financial resources you need.
When it comes to this investment portfolio, it's a good idea to ensure some diversification and include stocks that produce quarterly dividends to generate regular income, in addition to long-term capital gains. Two of the best income-producing stocks for retirees are Goldman Sachs (GS -0.23%) and PNC Financial (PNC 0.29%). Both will put real money in your pocket every quarter to supplement your retirement income from Social Security and other sources. Let's find out a bit more about these two stocks.
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1. PNC Financial currently pays out $4.60 per share, annually
PNC Financial is the country's seventh-largest bank with about $457 billion in assets under management (AUM). The Pittsburgh-based bank pays out a hefty $1.15 per-share quarterly dividend, which calculates to $4.60 per share on an annual basis. If you owned 150 shares, that would be about $172 per quarter (or $690 per year) that could be used to pay bills or for additional spending money.
The $4.60 per share annual dividend is one of the higher payouts you'll find among dividend-paying stocks. The dividend yield, which is the annual dividend payment expressed as a percentage of the stock's current price, is 3.12%, which is higher than the average yield (currently around 1.57%) of stocks in the S&P 500.
PNC Financial's payout ratio, which is the percentage of a company's income paid out as a dividend, is about 82.7%. That figure is relatively high, but that's because it's been a difficult year for banks, and earnings have tanked due to high provision of credit losses -- money set aside for potential loan defaults -- caused by the pandemic/recession. But those provisions are already going down from the highs in the second quarter as the worst of the crisis for banks appears to be over. The average ratio for PNC has been closer to a much more sustainable 30% over the past few years and should start dropping down next year as conditions for banks improve.
PNC Financial has delivered a dividend increase for the last 10 straight years and is in a strong capital position with lots of available liquidity to continue paying out the dividend. Its common equity tier 1 ratio (CET1) -- a measure of a bank's capital strength -- is 11.7%, which is well above the regulatory minimum established by the Federal Reserve. Also, its liquidity coverage ratio (LCR) -- a measure of liquid assets to cover losses -- is above the regulatory minimum.
PNC's strong capital position enabled the company to make an acquisition in the fourth quarter, buying the underperforming BBVA USA Bancshares for $11.6 billion in cash. The acquisition gained PNC another $104 billion in AUM with 637 branches in Texas, Alabama, Arizona, California, Florida, Colorado, and New Mexico.
The acquisition gives PNC a national profile with branches in 29 of the 30 largest U.S. markets. It will add scale and spur growth in a consolidating industry, helping to ensure the stock continues to pay out high dividends.
2. Goldman Sachs currently pays out $5 per share, annually
Goldman Sachs is another financial company, known primarily as an investment bank, that pays out an excellent dividend. Goldman Sachs pays a dividend of $1.25 per share each quarter, or $5 per share annually. If you owned 150 shares, you would pocket $187 each quarter (or $750 annually).
Goldman Sachs has a dividend yield of 1.9% and a low payout ratio of just 21.2%. It has had nine straight years of dividend increases, and over the past five years, the dividend has increased 14.4% per year.
The company not only offers a great dividend, but its stock is a great buy overall. The stock price was up 17% in 2020 -- a difficult year, in general, for financial companies. Goldman has a book value of $227 per share, resulting in a price-to-book value of 1.1. That means that the stock price is relatively low compared to the value of its assets, suggesting the stock price should see growth.
Goldman Sachs has a diverse revenue stream beyond investment banking as its fixed-income and equity-trading operations, along with its asset-management business have posted strong numbers. It's also looking to boost its consumer-banking and wealth-management arms, and it has seen steady growth with its Marcus digital-banking platform. It posted a return on equity of 17.5% in the third quarter, which is its highest number since 2010. And with a high CET1 ratio of 14.5%, it's in a very strong capital position.
Investor takeaway
You'll have a hard time finding dividend stocks that pay more or are more stable than these two. You can count on them to deliver that extra income you may need in retirement.
