Retirees have had a tough job investing their money in 2022. Stocks are in an ongoing bear market, and bonds, typically considered less volatile than stocks, have had one of the worst years for the asset class in generations. What should retirees do with their money as we turn the page from 2022 to 2023?
Dividend stocks aren't a silver bullet, but they have some perks, including passive income and the upside of share price gains when the market eventually enters a new uptrend. Retirees can sprinkle some high-yield dividend stocks into a diversified portfolio, including these five stocks yielding 5% or more.
1. AT&T
Telecommunications companies like AT&T (T 1.88%) are stable businesses; people pay their phone bills every month in both good and bad economies, and there is limited competition due to the enormous investments needed to build and maintain cellular networks. AT&T is America's largest wireless carrier, with just under 45% of the market. The company spent most of the past decade trying to get into the entertainment industry but is back to being a dedicated communications business after spinning off its entertainment assets earlier this year.
T Cash from Operations (TTM) data by YCharts
AT&T pays a handsome dividend that yields 5.8% at the current share price. You can see above that AT&T generates nearly $33 billion in annual operating profits, easily enough to afford the dividend, which costs AT&T about $8 billion annually. The dividend payout ratio is just 58% of AT&T's profits, so investors should look forward to continued dividends.
2. Verizon
Verizon Communications (VZ -0.53%) is AT&T's chief competitor and has the second-largest share of the U.S. wireless market at just over 30%. These two companies have traded blows over the years, which will likely continue. Owning both is an easy way to get broad exposure to U.S. wireless, which is only becoming more important to consumers as 5G technology enables technologies like streaming, cloud gaming, autonomous vehicles, and more.
VZ Cash from Operations (TTM) data by YCharts
Verizon is also a solid business in its own right; above all, its profits easily cover the dividend at a payout ratio of 55%. The dividend yield is 6.7% at today's share price. Verizon has struggled to grow its customer base this year. Still, wireless market share fluctuates over time, and Verizon's billions in operating cash flow should give it plenty of long-term staying power. Owning both telecom stocks gives investors almost three-quarters of the U.S. wireless market.
3. Philip Morris International
Tobacco is a unique product; it's one of the oldest industries in society. Despite its health effects and society's efforts to wipe out tobacco, Philip Morris International (PM 1.39%) keeps thriving. The company sells the Marlboro brand of cigarettes in international markets and developed the IQOS heated tobacco device, a smokeless alternative to combustible cigarettes. Philip Morris is steadily pushing into the U.S. market with IQOS and its recent acquisition of Swedish Match.
PM Cash from Operations (TTM) data by YCharts
Cigarettes don't require much investment, so tobacco stocks have traditionally paid out most of their profits as dividends. Philip Morris is yielding 5.2% at its current share price. The dividend payout ratio is a little high at 89%, but management recently affirmed its commitment to the dividend following its acquisition of Swedish Match. Investors should expect minimal dividend growth until that payout ratio decreases, but the juicy starting yield should stay intact.
4. Enbridge
Pipelines are the tollbooth operators of the energy grid, and midstream energy company Enbridge (ENB 0.68%) is among the largest of them. The company owns and operates tens of thousands of miles of pipelines that transport oil and natural gas from Canada to the Gulf of Mexico. Enbridge makes money by charging for the resources that go through its pipes. Additionally, the company operates several solar and wind farms and alternative energy investments.
ENB Cash from Operations (TTM) data by YCharts
Enbridge pays a dividend that yields 6.2% today. Investors will see the 121% payout ratio that signals Enbridge is delivering more in dividends than it makes in profits, but don't panic. Enbridge must invest vast amounts of money to build and maintain pipelines, which can skew the company's bottom line. Enbridge is a Dividend Aristocrat that's raised its dividend for 27 consecutive years and generates enough operating profits to cover the dividend with about $1.7 billion to spare. Investors can continue counting on Enbridge's generous dividend payments.
5. Dow Inc.
Chemicals are the building blocks of the modern world; chemicals are used in every industry, from adhesives for building things to preservatives to make food last longer. Dow Inc. (DOW 0.42%) is one of the world's largest chemical product companies; it doesn't rely on any industry because it's so diversified, but is generally sensitive to the broader economy.
DOW Cash from Operations (TTM) data by YCharts
However, Dow seems built to endure the ups and downs that may come; the dividend payout ratio is just 35% of profits, so the business would have to utterly collapse for the dividend to stress the company's financials. Meanwhile, investors can enjoy a robust 5.4% dividend yield at today's share price, making it an outstanding dividend stock for investors trying to add some industrial exposure to their portfolios.
