Retirees who rely on income stocks need a combination of growth and income. A good income portfolio consists of companies that are mature and pay a steady income stream along with stocks that are expected to continue to hike their dividend.
While some stocks out there (particularly mortgage REITs) have eye-popping dividends, those income streams are volatile and might not be the most reliable. Here are three steadily paying income stocks, including a couple that have a long history of dividend increases.
1. For American Tower, mobile data is a long-term growth story
American Tower (AMT 1.09%) is a real estate investment trust (REIT) that builds communications infrastructure like cellphone towers and data centers.
One of the big growth stories over the past decade has been the increased use of mobile data. Global demand for mobile data is expected to increase at a 21% compound annual rate from 2022 to 2028, which will be driven by the rollout of 5G technology. The cellphone tower business is highly concentrated, and American Tower has a strong position.
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American Tower is one of those stocks that provide growth and income, which is important to retirees. Over the past 10 years, it has increased its quarterly dividend every single quarter. That is a record that few stocks can claim. At current levels, it has a dividend yield of 2.8%.
2. Realty Income is a safe REIT with a long history of dividend increases
Realty Income (O 0.11%) is a REIT that focuses on single-tenant properties under an unusual lease structure.
Most leases are called gross leases, where the tenant is responsible for paying rent and the landlord covers all other expenses like maintenance, insurance, and taxes. Realty Income uses a triple-net lease model in which the tenant absorbs these costs, too.
These leases are generally long term, contain automatic rent escalators, and are expensive to break. This means that only certain types of tenants are suitable for these leases.
The typical Realty Income tenants are businesses with a highly defensive model. In other words, they are largely insensitive to the overall economy.
The REIT's main tenants are drugstores, dollar stores, and convenience stores. Regardless of the economy, people still buy over-the-counter medications, dishwashing detergent, and many other staples.
Realty Income has a long record of steady increases in its monthly dividend. Even during the dark days of 2020, the company hiked its payout three times. It has a dividend yield of 4.4% and should be a core holding for income investors.
3. Virtu has a cheap multiple and a decent yield
Virtu Financial (VIRT 0.52%) is a technology company that focuses on trading stocks and various other investment products, including exchange-traded funds, cryptocurrencies, commodities, and derivatives.
The company provides products that enable trading and clearing, data and compliance. The company is a major market-maker in stocks, bonds, and other assets. Market makers generally ensure that trading is conducted smoothly, and they will sometimes commit their own capital when there is an imbalance of buyers or sellers.
Volatility in the equity markets is a big driver of Virtu's business model. This can vary from year to year, and will mean that earnings can ebb and flow with market activity. In the fourth quarter of 2022, Virtu said, net trading income fell due to limited retail investor participation and lower-quality order flow.
While earnings fell, the stock is still trading at 8.3 times expected 2023 earnings per share and has a dividend yield of 5%. Its $0.96 annual dividend is more than amply covered by its expected 2023 earnings per share of $2.30.
