Your investment goals might change as you progress through life. It's fun trying to maximize your net worth when you're young, but generating income becomes much more critical nearing retirement.
If you're nearing retirement, it could be time to start looking for high-quality stocks that pay a solid dividend and are highly likely to continue paying you throughout your golden years. A diversified portfolio of blue-chip dividend stocks can accomplish this. Here are five stocks to consider starting with.
1. McDonald's
You can find a restaurant from McDonald's Corporation (MCD 1.32%) in nearly every notable town in America. With more than 38,000 locations across 100 countries, McDonald's is one of the largest restaurant chains in the world.
Image source: Getty Images.
Despite being known by its customers as a restaurant, McDonald's operates more like a real estate company. It acquires land, and a franchisee invests alongside the company to pay for equipment and supplies. The franchisee then pays rent to McDonald's and a royalty based on a percentage of food sales. McDonald's locations are 93% franchised, giving McDonald's a steady cash flow stream.
MCD Free Cash Flow data by YCharts
This model has helped McDonald's continually pay and increase its dividend to investors. The company's dividend has increased for 46 years and offers a dividend yield of 2% at its current price. The dividend remains affordable -- its payout ratio is 58%.
2. McCormick & Company
Look closely the next time you are in the spice aisle at your local grocery store. If you start looking at the labels on the back of spice bottles, the name McCormick & Company (MKC 1.04%) should appear quite a bit. The company is a leading seller of spices, sauces, and seasonings that fill the shelves in grocery stores across America.
People need to eat, and flavor will arguably be an everlasting aspect of nourishing ourselves. McCormick has built an empire despite offering such simple products, supplying them directly to consumers and commercially, selling to restaurants and commercial food producers. Its brands command shelf space from retailers, which helps it grow and introduce new products rapidly.
MKC Free Cash Flow data by YCharts
McCormick has paid and increased its dividend for the past 35 years, and there's no indication that this will stop anytime soon. The dividend payout ratio is manageable at 68% and offers investors a 1.5% yield.
3. NextEra Energy
Utilities are excellent business models for dividend-paying stocks. These companies deliver necessary water, gas, or electricity, which consumers need to live. It's also a heavily regulated industry that keeps competition from threatening a utility's operations.
NextEra Energy (NEE 1.57%) is the largest vertically integrated electric utility in the United States and is the world's largest solar and wind power producer. The company inherits the defensive nature of a utility business model. Still, its focus on renewables could give it growth opportunities moving forward that may not be possible for utilities deriving their energy from fossil fuels alone.
NEE Dividend data by YCharts
Utilities spend a lot of money building and maintaining their power lines, plants, and other equipment, so investors will see volatile numbers when looking at things like free cash flow or net income, which accounting adjustments can impact. We can see that the cash that the business generates has steadily risen over the years (cash from operations), powering its 27 years of dividend raises. Today, investors can enjoy a dividend yield of 1.6%.
4. PepsiCo
Visiting the grocery store for the second time, we find PepsiCo (PEP 1.34%), a food and beverage conglomerate that sells many brands that consumers buy each week: sodas, sports drinks, chips, and salty snacks. PepsiCo sells 23 brands that generate $1 billion or more in annual sales.
While Coca-Cola might be the most dominant beverage company, PepsiCo's snacks segment contributes to and diversifies the business. The company's revenue splits about 55% to 45% between snacks and beverages, and more than half of its sales come from North America.
PEP Dividend data by YCharts
PepsiCo is a legendary dividend stock, raising its payout for 49 consecutive years. Investors will notice that its dividend payout ratio is a tad high at 86%. This isn't ideal, but PepsiCo is so huge and has so many brands that between its balance sheet and being able to sell its brands to raise money (if needed), I wouldn't be too worried about PepsiCo's ability to keep paying its shareholders.
5. The Procter & Gamble Company
If you haven't noticed a theme yet, strong product brands that consumers need to buy repeatedly tend to make for great dividend stocks. Another example is Procter & Gamble (PG 1.52%), a household-goods conglomerate that sells cleaning products, soaps, lotions, shampoos, toothpaste, and more.
Procter & Gamble is a titan of its industry, selling its customers millions of low-dollar items. Its market cap is nearly $400 billion, and the business does almost $80 billion in sales each year. Not only is Procter & Gamble a defensive company, but its massive size protects it from competitors. If a cool, new start-up product begins taking market share from one of Procter & Gamble's products, P&G could simply acquire them with its massive, deep pockets.
PG Dividend data by YCharts
Procter & Gamble's dividend history reflects its consistent track record. It has raised its dividend for the past 65 years, the longest streak on this list and one of the longest of any stock on the market. Despite these increases, the dividend payout ratio remains modest at 55%, and investors can get a 2.1% yield on today's share price.
