There are different stages to life and they all require different mindsets, with one of the biggest shifts arriving at retirement. When it comes to investing you are switching from building a nest egg to living off of it, and that means dividend stocks become much more important. If you are about to make this switch, you'll want to examine Hormel Foods (HRL +0.91%) and Enbridge (ENB 0.01%). Here's why.
Hormel is small but growing fast
It might seem odd to include a food maker like Hormel that only offers a 2.4% dividend yield when talking about income stocks for retirement. Don't be lulled into the idea that you should only own high-yield stocks, because you'll also want to make sure you have some investments that grow their dividends at a rapid clip. That will help to keep your overall portfolio income apace with inflation. Over the past decade, Hormel's dividend has grown at a heady 13% a year, annualized.
Image source: Getty Images.
To be fair, dividend growth has slowed of late, but short-term fluctuations are normal. Today Hormel is dealing with rapid inflation, so a near-term deceleration in dividend growth is understandable. It will eventually pass rising costs on to consumers. That belief is buttressed by the fact that Hormel has increased its dividend annually for more than five decades, making it a highly elite Dividend King. You don't build a record like that without surviving some economic ups and downs along the way.
As for the business, Hormel is best looked at as a brand manager. Its collection of brands includes icons like SPAM, Planters, and Skippy, among many others. Long-term the company is using acquisitions to augment its already strong brand lineup and to reach into new categories and geographies. It also has a meaningful foothold in the food service space, where its pre-cooked meats help restaurants save time and money. Adding a stock like Hormel to a diversified portfolio of higher-yielding stocks will make your income stream more resilient over time.
NYSE: HRL
Key Data Points
Enbridge is big and still growing
At the other end of the yield spectrum is Enbridge, which offers investors a hefty 6.8% dividend yield. The dividend has been increased annually for more than 25 years. The trade-off here is that the dividend growth has been more modest, in the single-digit space. But given the elevated yield, that's probably a fair balance.
Enbridge is an infrastructure company. It owns oil and natural gas pipelines, a natural gas distribution business, and a small, but growing, renewable power operation. All of its businesses are backed by fees, long-term contracts, or they are regulated. That makes the cash flows highly reliable over time and supports its dividend-paying ability. Notably, Enbridge estimates that it is currently generating about CA$2 billion more in cash flow than it needs to support its business and dividend. That not only provides support for the dividend, but it means Enbridge has ample firepower to keep building out its portfolio.
NYSE: ENB
Key Data Points
Capital investment is vital here because the main way Enbridge grows is by building and buying assets. Right now it has CA$8 billion worth of spending on tap that should continue to support distributable cash flow growth in the years ahead. Notably, that spending includes investments in the renewable power space, which will also help the company adjust its portfolio along with the world around it. Simply put, management has no intention of being left behind as clean energy becomes a more important source of energy.
Dividend growth and yield
While neither of these two stocks is perfect (what stock is?), if you paired them up in a retirement portfolio you would end up with a very desirable mix of income and income growth. And that's the point -- you need to have a diversified mix of stocks in your retirement portfolio so you not only have enough cash to live, but so you don't fall behind the inflation curve. If you don't already own them, Hormel and Enbridge are two dividend stocks that you'll want to take a close look at as you near, or if you are in, retirement.
