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3 Dividend Stocks That Are Perfect for Retirement

By Brent Nyitray, CFA - Jun 2, 2021 at 7:01AM

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Here are some stable stocks that should hold up during rough times.

Retirees have different investment needs than younger investors do. They require income stability as well as protection of principal. Finding these sorts of stocks can be a challenge, but there are some great candidates out there. Here are three that are particularly suitable for older investors. 

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A Dividend Aristocrat that raised its dividend in 2020

Realty Income (O 0.74%) pays a monthly dividend and is a Dividend Aristocrat, an S&P 500 company that's raised its dividend for at least 25 consecutive years. It's a real estate investment trust (REIT) that specializes in single-tenant real estate. Realty Income's business model revolves around taking advantage of its ability to borrow cheaply to enable its tenants to occupy a building long-term for less than they could finance it. The tenants handle all of the property expenses, including taxes, insurance, and maintenance. 

Realty Income focuses on investment-grade clients that have highly stable business models -- its biggest tenants include Walgreens, 7-Eleven, and Dollar General. Companies like this are usually recession-resistant, and that's one of the reasons this REIT was able to maintain (and even raise) its dividend during the pandemic lockdown. While it was affected by closures of its fitness and theater clients, it performed better than most REITs during the crisis, with an occupancy rate of 98% as of March 31.. Realty Income has a dividend yield of 4.1% at Tuesday's closing price, and has been in business since 1969, which gives the company an enviable track record of stability and success.

The office-space market is getting back to normal

Kilroy Realty (KRC -0.45%) is another REIT, but it focuses on office properties on the West Coast. Kilroy owns 117 properties with 14.6 million square feet of total space in San Francisco, San Diego, Los Angeles, and Seattle. These are Class A properties, which means they are the highest quality, in the best locations, and with the best amenities.

Kilroy's biggest tenants are largely in tech, including Dropbox, the Cruise unit of GM, Microsoft, and Adobe. As more of the population gets vaccinated, offices are returning to normal. The REIT ended 2020 with a 94% leased rate, which was a slight decrease from the 97% at the end of 2019. It has been increasing its exposure to life sciences companies, which have seen a funding boom over the past year. Kilroy pays a $0.50 quarterly dividend, and was one of the few REITs that increased its dividend in 2020. As of Tuesday's close, the stock yields 2.9%. 

Regulated utilities are protected by the regulators

Aside from REITs, regulated utilities like Duke Energy (DUK 1.35%) have always been a favorite for income investors. Such utilities provide a necessary service and were historically granted protection from competition in exchange for regulation. Essentially, these companies are regulated by a state public utility commission that tells the company what it can charge its customers.

While state regulators aren't about to let a utility engage in price gouging, they aren't about to let it get into financial difficulties, either. These companies generally earn a fixed percentage on their assets, and they pay out much of their excess cash flow as dividends. Duke Energy provides regulated utility services primarily to the Southeast and some Midwest states. Its quarterly payout of $0.985 gives it a dividend yield of 3.9%.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Brent Nyitray, CFA has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Adobe Systems and Microsoft. The Motley Fool recommends Duke Energy. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Realty Income Corporation Stock Quote
Realty Income Corporation
O
$74.41 (0.74%) $0.55
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$290.04 (1.05%) $3.02
Adobe Inc. Stock Quote
Adobe Inc.
ADBE
$443.85 (2.06%) $8.96
Walgreens Boots Alliance, Inc. Stock Quote
Walgreens Boots Alliance, Inc.
WBA
$40.58 (1.26%) $0.51
General Motors Company Stock Quote
General Motors Company
GM
$39.22 (1.98%) $0.76
Dollar General Corporation Stock Quote
Dollar General Corporation
DG
$251.76 (-0.04%) $0.11
Duke Energy Corporation Stock Quote
Duke Energy Corporation
DUK
$109.97 (1.35%) $1.47
Kilroy Realty Corporation Stock Quote
Kilroy Realty Corporation
KRC
$53.09 (-0.45%) $0.24
Dropbox Stock Quote
Dropbox
DBX
$24.77 (0.85%) $0.21

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

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