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3 Top Dividend Stocks for a Better Retirement

By Ryan Downie - May 4, 2021 at 8:04PM

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Retirees should consider these stable dividend stocks to provide reliable income in their investment portfolio.

The right dividend stock can be a fantastic addition to your retirement fund. Stable businesses with high dividend yields will satisfy investment income requirements while letting you rest easy at night. Those are two of the most important requisites for retiree investment portfolios.

Remember, these aren't high-flying, risky growth stocks that go through steep declines periodically. These stocks hum along, slow and steady, kicking off valuable cash distributions to shareholders each quarter.

Well-dressed senior man counting money and smoking  a big cigar.

Image source: Getty Images

Illinois Tool Works 

Illinois Tool Works (ITW 0.35%) is a large industrial company with diverse operations across seven different segments. It produces commercial appliances, automobile components, construction equipment, chemicals, food equipment, and measurement electronics. This Fortune 200 member and Dividend Aristocrat is a leader across a huge portfolio of products, creating a wide economic moat with scale and brand strength. That sort of resilience and consistency is a great start.

Illinois Tool Works endured a difficult 2020 as revenue fell 10% from 2019. Results were more encouraging in the back half of the year with a return to positive growth. Management is predicting a bounce-back year in 2021. They call for double-digit revenue and earnings-per-share (EPS) growth along with profit-margin expansion. Importantly, they also expect free cash flow in excess of earnings, so those accounting profits are turning into cash that can be returned to shareholders. Having weathered the storm, there are blue skies ahead for the company.

Despite these operational challenges, ITW actually increased its quarterly dividend last year from $1.07 to $1.14 per share. That's why retirees love Dividend Aristocrats so much; they tend to deliver good news when everything else is crumbling. ITW currently pays a forward dividend yield of nearly 2% with a 67% payout ratio. Given the company's strong outlook and economic moat, investors should expect quarterly distributions to continue growing in the future.


MPLX (MPLX 1.75%) is a master limited partnership (MLP) that was formed to own and operate Marathon Petroleum's (MPC 2.76%) midstream assets. These assets include transportation and storage equipment, such as pipelines, terminals, tanks, and gathering systems. In general, midstream businesses are less influenced by the market prices for crude oil and refined products than other portions of the energy sector.

MPLX reported a 6.4% drop in operating revenue for the full year 2020, which was attributed to a lower volume of crude oil and natural gas transported. Energy exploration and production companies took capacity offline to reduce volume when oil prices dropped last year. The MLP also made efforts to reign in capital spending and divest certain assets that weren't delivering strong returns on investment. The energy sector as a whole looks more stable moving forward, and a return to travel this summer could encourage production volumes to ramp back up. That would further solidify operations for transportation and storage companies in the midstream.

Even with last year's disruption, MPLX was able to maintain its quarterly dividend. The company's distribution coverage ratio was a comfortable 1.58 in the fourth quarter of 2020, indicating that MPLX is producing more than enough cash to support its dividend. The MLP also reduced debt relative to income, further illustrating its attention to financial health. Retirees should prioritize financially healthy stocks to reduce risk.

This is a great opportunity for investors to acquire sustainable cash flow at a discount. The stock's 10% dividend yield is exceptionally high, implying that the market expects the distribution to be slashed. If the worst of our economic turmoil is behind us, then it's hard to imagine that MPLX will see its dividend reduced that drastically. Even if it were cut in half, the yield would still be well above average at 5%. This MLP is producing too much income for retirees to ignore.


Snap-on (SNA 0.61%) designs and sells tools and storage, software, and other equipment. The company primarily sells to auto mechanics, but it also targets aerospace, agriculture, construction, and defense customers. Snap-on sells directly to end users through 4,800 brick-and-mortar stores and an online channel. It also operates a franchise network of mobile sales trucks and maintains a financing business that extends loans to large buyers.

Snap-on wasn't spared from the pandemic disruption last year as sales dropped 3.7%. However, things came roaring back with 20% year-on-year revenue growth in the first quarter of this year. Granted, we should expect better results based on the complete halt of commerce last March, but this latest news is still highly encouraging.

Stability is the real value that Snap-on delivers for shareholders. The stock has paid consecutive quarterly dividends each period since 1939, which should interest retirees. Snap-on's $1.23 per share quarterly dividend translates to a 2% dividend yield right now. That quarterly distribution has grown rapidly from $0.71 per share in 2017, which is a bullish signal. A low 37% payout ratio shows that the company is pulling in more than enough cash to keep up the current dividend -- and potentially even raise it from here.


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Stocks Mentioned

MPLX LP Stock Quote
$29.66 (1.75%) $0.51
Illinois Tool Works Inc. Stock Quote
Illinois Tool Works Inc.
$182.89 (0.35%) $0.64
Snap-on Incorporated Stock Quote
Snap-on Incorporated
$198.24 (0.61%) $1.21
Marathon Petroleum Corporation Stock Quote
Marathon Petroleum Corporation
$84.48 (2.76%) $2.27

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

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