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3 Top Dividend Stocks for a Better Retirement

By David Jagielski - Jan 28, 2021 at 7:25AM

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Above-average payouts and strong bottom lines make these some of the best income investments out there right now.

Investing in dividend stocks is an excellent way to help bolster your portfolio and save for retirement. Even if you averaged a modest 4% return every year (whether through dividends or capital gains) over a 20-year period, your investment would more than double in value. It's one of the reasons billionaire investor Warren Buffett is a big fan of index funds that possess low risk and that earn steady returns over the years.

But you can be a bit greedier and dig for for better returns than that, making your bucket of savings even bigger by the time you retire. Three safe dividend stocks you can buy and hold for the long term include Medical Properties (MPW 0.16%)PepsiCo (PEP 0.31%), and JPMorgan Chase (JPM 0.59%). The real estate business, soda and snack giant, and big-time bank can serve as pillars for your portfolio for many years and can help make your retirement years a little more carefree.

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1. Medical Properties Trust

Medical Properties is a real estate investment trust (REIT), so it has to pay out at least 90% of its profits back out to shareholders. REITs are often stable investments since they generate recurring revenue from their tenants. As long as their tenants are doing well, a REIT should also be in good financial shape. That's one of the reasons Medical Properties is particularly attractive -- its tenants are hospitals, which are necessary institutions (as the current public health crisis highlights). Meanwhile, as the REIT adds to its portfolio, its top line grows. In 2019, Medical Properties recorded revenue of $854 million -- close to double the $442 million it generated in 2015.

Currently, the stock pays a quarterly dividend of $0.27, which yields 5% per year -- far above the S&P 500's average of 1.6%. And when the company last released earnings on Oct. 29, 2020, it reported funds from operations (FFO) of $0.40 per share for the period ending Sept. 30, 2020, leaving plenty of room for Medical Properties to cover its dividend payments. FFO is what REITs use instead of net income to assess their performance as it excludes items like one-time gains or losses. But that's not to say its bottom line isn't great -- over the trailing 12 months, Medical Properties has netted a very healthy profit margin of 38.5%.

With a great yield and a stable business, Medical Properties can be a great buy for investors looking to save for their retirement.

2. PepsiCo

PepsiCo has been a top household brand for decades. And that's because the company continues to find ways to evolve and meet consumers' changing tastes. Most recently, PepsiCo announced that it would be partnering with Beyond Meat in a joint venture that will focus on making plant-based products, including snacks and drinks.

That evolution is important for a business like PepsiCo to stay relevant with consumers and to ensure it keeps growing and generating strong profits. Although there hasn't been much growth from the company over the years, with sales in 2019 totaling $67.2 billion and up just 6.5% since 2015, PepsiCo has posted strong operating margins of 15% or better during that time frame (its profit margins have been a bit more volatile due to tax changes).

This dividend stock screams stability. PepsiCo is a Dividend Aristocrat, having raised its dividend payments for 48 years in a row. Its 2.9% yield is lower than Medical Properties', but it's still better than the S&P 500 average. With a payout ratio of 77% and a long history of increasing dividends, PepsiCo is a safe stock you can buy and hold until retirement and just watch as the dividend income rolls into your portfolio.

3. JPMorgan

Investing in a top bank stock like JPMorgan is another great way to collect a safe dividend. Although its dividend yield of 2.7% is lowest on this list, this is arguably the most stable investment of the three stocks here. And that's not just because its payout ratio is very modest at under 40%.

Top banks like JPMorgan consistently generate strong profits; even over the trailing 12 months, the company has recorded a net margin of more than 21%. And while the coronavirus pandemic did put a dent in its earnings as the bank needed to increase its reserves for bad debts, JPMorgan's profit margin never fell below 10% in any of the past four quarters.

It's that kind of stability that makes JPMorgan a safe investment to hold on to for many years. Even if the economy goes into a downturn for multiple quarters (or even years), the big bank is nearly guaranteed to recover and stay resilient throughout.

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Stocks Mentioned

Medical Properties Trust, Inc. Stock Quote
Medical Properties Trust, Inc.
$18.61 (0.16%) $0.03
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
$130.20 (0.59%) $0.76
Pepsico, Inc. Stock Quote
Pepsico, Inc.
$170.63 (0.31%) $0.52
Beyond Meat Stock Quote
Beyond Meat
$27.90 (6.62%) $1.73

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

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