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3 Best Dividend Stocks for Retirement

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These three dividend stocks will provide financial peace of mind during retirement.

A retirement portfolio should be built on a foundation of strong stocks and fixed-income assets across a variety of industries. But one of the most important aspects of a great retirement stock is that it pays a dividend, because those payments will help your portfolio thrive during periods of market turbulence.

In order to help you find stocks that will help you breeze through retirement financially, three Motley Fool contributors are recommending three dividend-paying stocks that can be solid additions to your retirement portfolio.

Two hands holding a bunch of hundred dollar bills.

Image source: Getty Images.

A powerful payer for your portfolio

Eric Volkman (Consolidated Edison): One of the sturdiest dividend stocks on the scene is Consolidated Edison (ED 0.64%), the long-standing utility that supplies power and natural gas to New York City and its environs. Dividend raises from Con Ed, as New Yorkers like to call it, are so reliable, the company is a Dividend Aristocrat -- one of only a clutch of S&P 500 index stocks that have lifted their payouts at least once annually for a minimum of 25 years in a row.

In fact, before long, Con Ed will join an even more exclusive club -- that of the Dividend Kings. These are the companies have done the once-per-year-minimum raise thing for at least 50 years. Just now, the company's streak stands at 47.

Con Ed has the (ahem) power to keep upping the payout because it supplies a voracious market that's never satisfied. New York City is famously a 24-hour municipality, and Con Ed is a major part of keeping those lights on. As a utility in a rather heavily regulated environment, its revenue (around $12 billion and change annually) doesn't shift around much.

Yet the company can and does take advantage of efficiencies, which in good times help boost profitability. Even in bad times, it manages to earn plenty of coin. For example, despite the steep challenge of the coronavirus pandemic last year -- in which many individual and business customers left the crowded city in hopes of escaping infection -- Con Ed landed well in the black on the bottom line, at just over $1.1 billion. 

New York City is already emerging from its coronavirus bunker, and Con Ed should benefit commensurately. Recently, the company guided for 4% to 6% annual growth across the coming half decade, which is an impressive rate for the typically slow-burn utility sector.

Con Ed also has a bright future ahead of it as a major producer of renewable energy, specifically solar, the demand for which will only increase in a world going ever greener.

Nobody finds utilities to be an exciting investment and the coronavirus slump made some investors give up on Con Ed. As a result, the company's share price has dipped and its dividend yield has risen. In fact, with the latter at a relatively chunky 4.2%, the stock is one of the top 10 highest yielders among the Dividend Aristocrats.

Sure, 4%-plus is a nice haul for anyone looking for a good income stream. And given Con Ed's rock-solid business and its ideal position from which to take advantage of New York City's latest comeback, we can expect some happy growth in both fundamentals and share price.

A jar full of coins that says dividends.

Image source: Getty Images.

"Once bitten, twice shy" can create a great opportunity

Chuck Saletta (Kinder Morgan): Energy pipeline giant Kinder Morgan (KMI 0.54%) currently offers investors a nearly 6% yield. Even better, it offers that yield after completing a massive transformation that started when it was forced to cut its dividend in late 2015 to protect its balance sheet.

That's important to understand because it means the Kinder Morgan of today is a much stronger company than it was prior to its dividend cut. Today's dividend is much more sustainable, and while its dividend growth rate has recently dropped below expectations, its cash flow -- and thus, dividend coverage -- remains strong. With natural gas and oil usage projected to remain steady or increase over the next several decades, it's likely that its pipelines will remain in demand for a long time to come.

As a retiree looking for dividends, that should matter a great deal. After all, when a dividend gets cut, the company's stock often falls, too. Once retired, you no longer have a paycheck to rely on to cover your costs or replenish your investments if they evaporate. As a result, having a good reason to believe your dividend stream can continue should be of paramount importance, since a cut could decimate both your income and your nest egg.

If even that's not enough to make Kinder Morgan look like an attractive dividend stock to consider, there's another key reason. Generally speaking, it's both politically difficult and economically expensive to build new pipeline capacity. That helps protect operators like Kinder Morgan that already have a large number of existing pipelines in their networks.

Put it all together and Kinder Morgan has:

  • A decently high yield that looks well covered by cash flows
  • A healthier balance sheet than it did before
  • Good reason to believe its business will remain in demand for decades 
  • Some level of built-in protection against new competitors

With a combination like that, retirees looking for dividends could do far worse than considering this pipeline giant.

Mickey and Minnie in front of a Disney castle.

Image source: Walt Disney.

The best dividend stock not currently paying a dividend

Barbara Eisner Bayer (Walt Disney): I'm going out on a limb here by recommending a dividend stock that's not currently paying a dividend. But its strong growth prospects and history of stability trumps that fact.

When you were little, you probably were in love with Walt Disney (DIS 3.30%) and its universe of characters, films, and TV shows. And if you're a parent or grandparent, your children and grandchildren probably are in love with them, too. You may not love Mickey Mouse in particular, but there must be some cartoon character or superhero who you adore and is brought to life under Disney's monstrous ecosystem.

Yes, Disney suffered immensely during the pandemic as it had to close down its theme parks and cruise ships. Fiscal year 2020 showed the worst results ever -- and yet the stock roared 73.7% higher from April 2020 to April 2021. In 2019, before the pandemic hit, more than 178 million people visited Disney parks worldwide -- and those people were dropping a whole lot of moola into the company's coffers.

The parks are now reopening, and Disney is raising prices. And if you must take the kids to Disney (and of course you must!), you're going to pay higher prices, which means even more money for the media company. Consumers may not like the higher costs, but when the kids are screaming to try the new rides and get pictures with Ariel, is price really an issue?

The company's future extends beyond its theme parks and cruise ships: Disney is a content-creation machine and a media juggernaut that plans to release 100 new titles a year for the next several years.

When it launched its streaming service Disney+ in November 2019, it beat all estimates for subscribers -- and it's only beginning to open up the service globally. Clearly, Disney+ saved the company during the pandemic and already claims more than 100 million subscribers. But streaming is going to play a huge part in its future. According to Digital TV research, revenue from online media properties is anticipated to double between 2019 and 2025, and Disney is right there on the front lines to take advantage of that growth.

To put the icing on the cake, Disney has been a traditionally good dividend payer and had a history of increasing dividends. However, during the pandemic, it temporarily suspended its dividend -- which saved the company a whopping $3.2 billion.

Management has stated that it plans to begin paying dividends again soon, and there's no reason to doubt that. In the meantime, investors who were upset by the lack of dividend payment were calmed by that increase of 73.7% in the stock price.

So even though there's no current dividend, Disney gets my vote as one of the best dividend stocks to add to your portfolio. Management's decision turned out to be a brilliant one for the company, and bold leadership is one of the things I look for when selecting a stock for my senior years. 

Disney has been around since 1923 and has only grown bigger and better. The company is here to stay, and no slowdown in growth is in sight. And that's why, even though the dividend is on temporary hiatus, it's one of the best stocks you can buy for your retirement portfolio.

Barbara Eisner Bayer owns shares of Walt Disney. Chuck Saletta owns shares of Kinder Morgan and Walt Disney and has the following options: long January 2022 $20 calls on Kinder Morgan, short January 2022 $20 puts on Kinder Morgan, short September 2021 $18 puts on Kinder Morgan, and short September 2021 $22 calls on Kinder Morgan. Eric Volkman owns shares of Walt Disney. The Motley Fool owns shares of and recommends Kinder Morgan and Walt Disney. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$121.57 (3.30%) $3.88
Consolidated Edison, Inc. Stock Quote
Consolidated Edison, Inc.
ED
$99.11 (0.64%) $0.63
Kinder Morgan, Inc. Stock Quote
Kinder Morgan, Inc.
KMI
$18.69 (0.54%) $0.10

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

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