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Nearing Retirement? These Stocks Are as Safe as They Come

By Reuben Gregg Brewer – Updated Oct 15, 2021 at 5:48PM

Key Points

  • High-yield Realty Income is the leader in one of the safest niches of the REIT sector.
  • Kellogg is a dominant food maker that has overhauled its business to prepare for a stronger future.
  • Chevron has one of the strongest positions in the energy patch, and oil isn't going away anytime soon.

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Boring is beautiful when you are looking to generate income in retirement. That's why these ultra-safe stocks should be in your portfolio.

When investors get close to retirement, they start thinking about investing in a different way, since many will be going from building a nest egg to living off of what they have built up. The safety of your investments starts to play an increasingly important role, since stopping working means you won't be able to easily add more money to your savings.

That's why value stocks that pay dividends like Realty Income (O 0.46%), Kellogg (K 0.72%), and Chevron (CVX -0.10%) should be on your watch list today. Let's find out a bit more about these three safe income-yielding stocks.

A person carrying a giant bag with a dollar sign on their back.

Image source: Getty Images.

1. Realty Income: "The Monthly Dividend Company"

Realty Income is a real estate investment trust (REIT) that has gone so far as to trademark the nickname "The Monthly Dividend Company." That's a pretty bold assertion, but the REIT has lived up to it, with over 25 consecutive annual increases to its dividend. That qualifies it as a Dividend Aristocrat. To be fair, the annual dividend increases are generally small, but they have easily kept up with or slightly exceeded inflation over time. If you are looking for a reliable dividend payer, Realty Income will fit the bill. And its roughly 4.1% dividend yield is well above what you'd get from an S&P 500 Index fund.

The core of the REIT's portfolio is single-tenant retail properties, with a smattering of industrial assets thrown in for diversification purposes. It also gets around 9% of its rents from properties in Europe, further spreading its bets around.

One of the keys to the story, however, is that Realty Income uses triple-net leases, which require its tenants to pay for most of a property's operating costs. It's generally considered a low-risk approach in the property space. Basically, the company makes the difference between its financing costs and the rents it charges. As one of the biggest names in the net-lease niche, with an investment-grade-rated balance sheet, it is well-positioned to continue rewarding investors with dividend increases for years to come.

2. Kellogg: Out of favor, but still a dominant force

Next up is Kellogg, which most people know as a cereal company. That used to be true, but today the food maker only gets about a third of its sales from this product category. The rest comes from snacks (about 50%) and frozen foods. Snacks in particular have been a key growth area in the food space.

However, this makeover was basically completed just in time for the 2020 coronavirus pandemic to upend the normal demand picture in the grocery space. So 2020 was a great year, and 2021 has been relatively weak by comparison, obscuring the progress that has been made. Looking back over a two-year period, however, the company's organic sales appear to be moving in the right direction. Now the specter of inflation has come up, putting cost pressure on food makers like Kellogg. But those costs typically get passed on to customers over time, so it's likely to be a transitory problem. 

Add it all up, though, and investors have been relatively downbeat on the company, which is currently offering a historically high 3.7% dividend yield. It looks like the company, which has increased its dividend annually for 17 consecutive years, isn't getting the credit it deserves. If you can look past the headlines to see the underlying strength of this iconic food maker, it has in fact proven that it has the ability to adapt and change, while still paying investors all along the way.

CVX Dividend Yield Chart

CVX Dividend Yield data by YCharts

3. Chevron: Oil is still important

The last name up is Chevron, which will probably be a more controversial pick. It is one of the world's largest and financially strongest integrated energy companies. It has increased its dividend annually for more than three decades, and offers a generous 5% yield. It even used the energy downturn in 2020 to buy a competitor, ensuring it would come out of the weak patch a stronger company. All in all, it is a well-run oil and natural gas company with a diversified and robust business. But the world is shifting toward cleaner energy sources.

However, oil and natural gas are expected to be integral parts of the larger energy picture for decades to come. That gives Chevron ample time to keep milking its cash cow operations and leeway to adjust to a new energy environment as needed. It's moving more slowly than its European peers on that last effort, but investors with a contrarian bent should prize the inherent need the world has for what Chevron produces. Meanwhile, the yield today is historically high, so you are buying it while it's cheap. 

Time to refocus that portfolio

If you are getting close to retirement and are thinking about shifting your portfolio toward reliable and safe dividend stocks, then Realty Income, Kellogg, and Chevron should all be high on your wishlist. They each offer sizable yields and have long histories of success behind them. They may not be exciting businesses, but that's part of the allure. 

Reuben Gregg Brewer owns shares of Kellogg. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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