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3 Dividend Stocks Ideal for Retirees

By David Jagielski - Apr 14, 2021 at 7:42AM

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These stable businesses can offer income investors some great yields.

Dividend stocks can be terrific sources of income for investors. Particularly for retirees, their regular payouts can be used to help cover living expenses, reducing the need to sell assets and helping to make their nest eggs last longer.

But not every dividend stock is a good investment. When weighing a purchase, it's important to consider the strength of the underlying business and how likely it is that it will continue making regular payments at its current level or better. Plus, if income is your focus, the yield itself needs to be attractive enough to make the investment worthwhile.

At current share prices, Medical Properties Trust (MPW 2.42%)Duke Energy (DUK 2.25%), and Telus (TU 1.12%) all yield 4% or better, and all could be great options for retirees to buy today.

Group of seniors visiting a tourist spot.

Image source: Getty Images.

1. Medical Properties Trust

Medical Properties Trust is a real estate investment trust (REIT), which means that it's obligated to pay out at least 90% of its annual profits in dividends to shareholders. As long as a REIT is collecting rents and not having problems with tenants, it can make for a solid income investment. And while investing in apartment REITs or ones that may be dependent on collecting cash from out-of-work individuals may be risky, a REIT like Medical Properties Trust, which focuses on the healthcare industry, is much safer. Nearly 85% of the REIT's portfolio is made up of general acute care hospitals and inpatient rehabilitation hospitals. It also offers geographical diversification -- its 431 facilities are spread across nine countries.

Those are all things that help make this a safe long-term investment. Another reason income investors will love this REIT is that it has been raising its payouts. Its quarterly payments of $0.28 are 27% higher than the $0.22 the company was paying five years ago. Today, the stock yields 5.2% -- well above the S&P 500's average yield of just 1.5%.

When looking at REITs, the key metric investors should focus on is funds from operations (FFO). For this type of company, it's the most meaningful measure of profitability since it excludes gains and losses. And for the current year, the company is forecasting an annual FFO run-rate in the range of $1.72 to $1.76 per share. Given that the annual dividend is currently $1.12, that gives the REIT plenty of room for further payout increases.

Medical Properties Trust provides great stability for retirees, and with a top dividend yield, it also offers them plenty of incentive to keep it in their portfolios for many years.

2. Duke Energy

I'm always a fan of energy stocks for dividend income because they can provide even more stability than REITs. While there may be fluctuations in energy use due to weather, those abnormalities tend to balance out over the long haul, and companies like Duke Energy can generally expect to earn fairly consistent income. While that might mean they have limited growth potential unless they make acquisitions, for income investors, what is of greater importance is that the companies' bottom lines remain strong.

Duke Energy's revenues over the past five years have stayed within a fairly narrow range between $22 billion and just more than $25 billion. And with healthy gross margins of nearly 50%, its operations look solid. Its profits took a hit in 2020 due to the decision to cancel the Atlantic Coast Pipeline project it was developing with Dominion Energy, but on an adjusted basis, its per-share profit of $5.12 was slightly ahead of the prior year's $5.06.

Investors may initially be spooked to see a payout ratio higher than 200%. But Duke Energy generates a ton of money. Last year, it accumulated $8.9 billion in cash from its day-to-day operations, which was significantly more than the $2.8 billion it paid out in dividends. At current share prices, Duke Energy's dividend yields around 4%, and it too has been increasing its payouts. From $0.825 five years ago, the company has hiked its quarterly payouts by 17% to $0.965.

With a great yield supported by a stable business, this is another dividend stock retirees can feel comfortable holding in their portfolios for the long term.

3. Telus

This telecom provider is one of my favorite dividend stocks -- it's as boring of an investment as it gets. It is a low-volatility stock that rarely sees big share-price moves. And with a 4.8% yield, it is a much better option than leaving money in a savings account. For retirees, it can make for an ideal investment because as one of the top telecom companies in Canada, it is an industry leader and a safe bet to continue producing strong results for the foreseeable future.

And the company isn't done growing, either. With the rollout of 5G wireless and its PureFibre service, there are still plenty of ways that Telus can upsell its existing services. For 2021, the company expects consolidated revenue to grow by as much as 10%, which would be up from the 5.5% growth it achieved this past year. 

With a payout ratio of 77%, Telus' dividend isn't in danger. And those payouts could continue to get even bigger. In the past five years, management has raised its quarterly payments by more than 41%. That trend isn't likely to change, with management projecting a strong 2021.

Telus' strong financials and high yield make it an investment that should check off all the boxes for retirees looking for stable, recurring cash flow.

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Stocks Mentioned

Medical Properties Trust, Inc. Stock Quote
Medical Properties Trust, Inc.
MPW
$15.64 (2.42%) $0.37
Duke Energy Corporation Stock Quote
Duke Energy Corporation
DUK
$109.62 (2.25%) $2.41
TELUS Corporation Stock Quote
TELUS Corporation
TU
$22.53 (1.12%) $0.25

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

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