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3 Stocks to Help You Build Retirement Wealth

By Selena Maranjian - Feb 12, 2021 at 6:03AM

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How does a 5.4% dividend sound?

Sorry, but Social Security will not be enough to support you comfortably in retirement. It's designed to provide only 40% of your pre-retirement income, so unless you expect to need a lot less money when you're retired, you'll want to beef up your cash flow somehow.

Dividend-paying stocks are one of many effective ways to increase your retirement income, as they can deliver regular infusions of cash without your having to sell any shares. (And, in a pinch, you can sell them for additional cash.) Better still, dividends from healthy and growing companies tend to be increased over time.

A senior woman is counting a wad of cash and looking impressed.

Image source: Getty Images.

Here are three dividend-paying stocks to consider for your long-term portfolio.

1. American Tower

You may not be very familiar with American Tower (AMT 1.35%), but there's a good chance it's making your wireless communication life easier. It boasts more than 183,000 sites with towers globally (about 23% of which are in the U.S. and about 77% abroad), and it profits chiefly by leasing space on those wireless and broadcast towers. In addition, American Tower is a real estate investment trust (REIT), a kind of corporation that is required to pay out at least 90% of its profits in dividends to shareholders, in exchange for tax breaks. The company's stock recently yielded 2.1%, and that payout has been increased by an annual average of 20% over the past five years. Better still, the stock has been growing, too, up about 80% over the past three years. If you expect the world to need more communication and broadcast towers over the coming years, give this stock a closer look, as it could serve you well in retirement.

2. International Business Machines

IBM (IBM 2.41%) has not been firing on all cylinders lately, but it is taking steps to improve its performance, and patient believers who invest in it can enjoy a fat dividend yield of 5.4% while they wait for better days. The company has been transforming itself for many years now, jettisoning some lower-margin businesses such as servers and investing more in faster-growing and more profitable ones, such as hybrid cloud computing. It's also betting big on artificial intelligence. IBM's overall revenue for 2020 sank by 5% year over year, but cloud computing revenue grew by 19%.

The company's current condition may not be wonderful, but it's sporting a reasonable price in a market where gobs of technology-heavy companies are overvalued. Its forward-looking price-to-earnings (P/E) ratio was recently near 11, which is roughly its five-year average. What really matters to long-term investors is where a company will be in five or even 10 years, and IBM stands a good chance of being much stronger and more profitable by then.

3. Facebook

Facebook (FB 1.45%) is another promising candidate for a retirement portfolio, and it, too, appears reasonably priced, if not attractively priced. Both its trailing and forward-looking P/E ratios were recently below their corresponding five-year averages. Facebook is not a dividend-paying stock, but that's not surprising. Despite its enormous size, with a market value recently topping $750 billion, it's still a briskly growing enterprise and is deploying available earnings into furthering its growth. At some point, it's easy to imagine that paying a portion of earnings to shareholders in the form of a dividend will become an attractive option.

Even if that doesn't happen, though, retirees can look forward to stock-price appreciation over time. Facebook is huge, boasting 2.8 billion monthly active users and 1.8 billion users visiting it daily as of December, respectively up 12% and 11% over year-ago levels. (That's out of 7.7 billion people on earth.) The company has been sitting on more than $60 billion in cash and equivalents, too, giving it plenty of resources for strategic acquisitions or new product development. Facebook is more than just Facebook, as it also encompasses Messenger, WhatsApp, and Instagram, and includes Oculus virtual reality technology.

These are just three of many companies out there that could serve you well in retirement, providing dividend income, solid stock-price appreciation, and in many cases, both. If American Tower, IBM, or Facebook intrigues you, take a closer look.

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Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$196.35 (1.45%) $2.81
International Business Machines Corporation Stock Quote
International Business Machines Corporation
$131.58 (2.41%) $3.10
American Tower Corporation Stock Quote
American Tower Corporation
$247.58 (1.35%) $3.30

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

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