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2 Top Dividend Stocks for a Better Retirement

By David Jagielski - May 26, 2021 at 7:22AM

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They're safe companies that also regularly raise their payouts.

Retirement is when you should just sit back and enjoy life, not worry about your investments. And while there are never any guarantees as to how a stock may perform years from now, there are steps you can take and businesses you can invest in that will bring down your portfolio's risk. For starters, focusing on blue-chip companies that consistently post profits should be a given; no high-risk investing in meme stocks. And while income investments are great, you should focus on dividend stocks that also increase their payouts.

Two stocks that fit those criteria today are Bristol Myers Squibb (BMY 0.58%) and Intel (INTC -1.13%). Investing in both of these businesses can set you up for some great long-term returns, and make your retirement years more enjoyable.

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1. Bristol Myers

Biopharmaceutical company Bristol Myers has been expanding its business recently with the acquisitions of Celgene and MyoKardia. And while that has negatively impacted its financials in the short term and increased its expenses, over the long haul that should help make the business stronger and more diverse. In 2020 the company reported an eye-popping $9 billion loss, largely due to acquisition-related expenses; in previous years, however, Bristol Myers has had no trouble staying out of the red.

For 2021 the company projects that it will get back into the black, with per-share profits coming in between $3.12 and $3.32 -- which at the midpoint would be a 60% improvement from the $2.01 earnings per share it reported in 2019. The company is also expecting that its gross margin will be extremely strong at 80.5% of revenue. In prior years, Bristol Myers was reporting margins that were around the 70% mark. And while that's still good, improving on that only makes the business look even better.

If you're a dividend investor, that's great news -- it means the company can easily support its quarterly dividend payments of $0.49, and its profit this year would put its payout ratio at around 61%, which is very manageable. And with a stronger business there's room for rate hikes, which the company has been making in recent years. In December 2020, Bristol Myers announced it was increasing its dividend for the 12th year in a row by 8.9%. Today the stock yields 2.9%, which is well above the S&P 500 average of 1.4%. On an investment of $25,000, that would produce $725 in annual income. 

With a bright future ahead and lots of dividends to collect, Bristol Myers is a stock that can be a great part of any investor's portfolio, whether you are in retirement or planning for it. 

2. Intel

Many top tech stocks don't pay dividends, but Intel does -- and that's what makes it a special investment. With a yield of 2.4%, it isn't far behind Bristol Myers' payout, and it has also been routinely raising its dividend payments. Today its $0.3475 quarterly payment could generate over $600 annually on a $25,000 investment. And that number could get bigger -- Intel has been raising its dividend payments regularly since 2015, and they have grown by 45% since then. And with a modest payout ratio of just 30%, there's plenty of room for the company to make more aggressive rate hikes in the future.

Intel also buys back shares. As of March 27, it still had room to repurchase another $7.2 billion under its current agreement with the board of directors. While buybacks aren't dividends, they help drive up the value of a stock, and through capital appreciation can give investors another way to profit from owning shares of a company.

The strength of Intel's business is what allows the company to give back so much to investors. In the past three years its net margins have come in at 26% or better, with its bottom line coming in at over $20 billion consistently. The company has also seen its free cash soar from $10 billion in 2017 to more than double that tally in 2020.

With more and more products using computer chips and a global semiconductor shortage, the chipmaker will be busy for the foreseeable future. The company is investing $20 billion to build more factories in Arizona to ramp up production. Intel expects the current shortage could take two years to address, meaning that it may miss out on some revenue along the way. But once it expands capacity, the company will be in a great position to generate even stronger numbers. In the three-month period ending March 27, its net sales of $19.7 billion were flat from the previous year.

While it will take some time for Intel to take advantage of all this demand, over the long term the stock looks to be a great buy, and could be suitable for both growth and dividend investors.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bristol Myers Squibb. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Bristol Myers Squibb Company Stock Quote
Bristol Myers Squibb Company
BMY
$74.56 (0.58%) $0.43
Intel Corporation Stock Quote
Intel Corporation
INTC
$35.78 (-1.13%) $0.41

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

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