It's a trying time to be an investor. Through the first six months of 2022, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite, have respectively plunged by 15%, 21%, and 30%. It's the worst start to the first half of a year for the S&P 500 since 1970.
While big declines in the stock market are known for testing investors' resolve, they can be especially worrisome for retirees looking to generate income from equities. Though yield is important for seniors, preserving and/or steadily growing their initial investment is also essential.
The good news is that there are rock-solid, time-tested dividend stocks that offer a long track record of delivering for their shareholders. Here are four of the safest dividend stocks retirees can confidently buy right now.
Johnson & Johnson: 2.55% yield
Perhaps the safest dividend stock on the planet for retirees is healthcare conglomerate Johnson & Johnson (JNJ 0.41%). In April, J&J increased its base annual payout for a 60th consecutive year.
The reason I'd go so far as to proclaim Johnson & Johnson the world's safest income stock is simple: It's one of only two publicly traded companies that holds the coveted AAA credit rating from Standard & Poor's (S&P). S&P is part of global ratings giant S&P Global. To put this rating into context, S&P has more confidence that J&J will service and repay its outstanding debt than it does in the U.S. federal government, which has an AA rating, doing the same.
Aside from its pristine credit quality, Johnson & Johnson also benefits from the defensive nature of the healthcare sector. No matter how well or poorly the U.S. economy and stock market perform, there will always be people who need prescription medicine, medical devices, and healthcare services. This predictability of demand is what helped J&J grow its adjusted operating earnings every year for more than three decades.
As I've previously alluded, J&J's operating model pays dividends as well. It generates most of its growth and operating margin from pharmaceuticals. However, brand-name drugs have a finite period of sales exclusivity. To counter this, J&J can lean on its medical device segment, which is perfectly positioned to take advantage of an aging domestic and global population.
Enterprise Products Partners: 7.63% yield
A second exceptionally safe dividend stock retirees can confidently buy right now is oil and gas midstream operator Enterprise Products Partners (EPD -0.61%). Enterprise Products has increased its payout in each of the past 23 years, and its 7.6% yield is the high-water mark on this list.
For some retirees, the idea of buying anything having to do with the oil and gas industry might not be palatable. After all, oil and gas demand fell off a cliff in April 2020 due to the COVID-19 pandemic. While this demand decline hurt drilling and exploration companies, midstream operators like Enterprise Products Partners were shielded from these struggles.
Enterprise operates more than 50,000 miles of transmission pipeline and 24 natural gas processing facilities and maintains 14 billion cubic feet of natural gas storage capacity. It's a mammoth energy middleman that relies on fixed-fee contracts. In other words, the vacillating price of energy commodities doesn't impact its operating cash flow.
What's more, Enterprise Products Partners' distribution coverage ratio (DCR) was never an issue, even during the initial stages of the pandemic when oil and gas demand plummeted. The DCR describes the amount of distributable cash flow from operations, relative to what was paid to shareholders. A figure below 1 would imply an unsustainable payout. The company's DCR never fell below 1.6.
With oil and natural gas hitting multidecade highs in 2022, demand for energy infrastructure should continue to grow.
York Water: 1.93% yield
Utility stocks are often a safe haven for retirees who desire steady income and share-price stability. Among the dozens of utilities to choose from, small-cap water utility stock York Water (YORW -1.84%) is arguably the safest.
Chances are that you've never even heard of York Water before. That's because it services just 51 municipalities spanning three counties in South Central Pennsylvania. Virtually all of York's customer gains are the result of prudently executed acquisitions.
But don't let its size fool you. The company has paid a dividend to its shareholders every year since James Madison was president. That's 206 consecutive years of payouts, 60 years more than the next-closest publicly traded company.
The obvious beauty of York's operating model is demand predictability. Regardless of whether you own or rent, you need water and wastewater services. Demand for these services doesn't change much from one year to the next. Homeowners and renters also usually have only one or two options for their utility providers, which further supports the idea of demand predictability.
Furthermore, York Water is a regulated utility, which is a fancy way of saying that it can't pass along rate hikes without approval from the Pennsylvania State Public Utility Commission. Though this might sound like a hassle, it ensures York isn't exposed to unpredictable wholesale pricing.
AT&T: 5.3% yield
Last, but definitely not least, telecom stock AT&T (T -1.77%) is one of the safest stocks retirees can confidently buy right now. AT&T's 5.5% yield is about four times higher than the current yield of the S&P 500.
Although major telecom companies aren't the growth story they were two or three decades ago, they can still move the needle for their shareholders. And it certainly doesn't hurt that owning a smartphone and having wireless access have essentially become basic necessities.
AT&T's biggest growth driver for the foreseeable future is its 5G push. In 2022 and for years to come, AT&T is spending billions to upgrade its wireless infrastructure to support 5G download speeds. It's been a decade since wireless download speeds were last meaningfully improved, which should lead to a steady device replacement cycle for consumers and businesses. Ultimately, AT&T should benefit from increased data consumption, which happens to be where the company generates its juiciest wireless margins.
The other big positive for AT&T is its recent spinoff of content arm WarnerMedia, which was merged with Discovery to create Warner Bros. Discovery. When this combination closed in April, AT&T received a cash payment of $40.4 billion. This cash, coupled with a reduced payout -- which still results in the aforementioned 5.5% yield, might I add -- should allow the company to make a sizable dent in its outstanding debt.
Valued at only 8 times Wall Street's forecast earnings in 2022 and 2023, AT&T appears to have a safe floor built beneath its shares.