If you're retired, you want to enjoy your golden years without worrying about your finances. That's why dividend stocks are a popular choice for many retirees. They can provide you with a steady stream of income that can help you cover your expenses and live comfortably.
But not all dividend stocks are suitable for retirees. Some have high payouts, but also high chances of reducing or eliminating them. Others have low payouts but also offer more stability and security. The best dividend stocks for retirees combine a decent yield with a strong track record of dividend safety and growth. Here is an overview of two ultra-safe dividend stocks that retirees may want to consider buying.
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Target: Buy the dip for a top source of passive income
Target (TGT 0.18%) is one of the largest retailers in the U.S., with 1,954 stores across the country. The company has been able to adapt to changing consumer preferences and shopping habits over its lengthy 71-year operating history. In recent times, for instance, Target has invested heavily in its e-commerce capabilities, omnichannel services, and store remodels, which have boosted its sales and profitability.
This comprehensive strategy for the modern retail environment has resulted in a robust increase in annual sales over the previous three years. Specifically, Target's top line has grown at an impressive compound annual growth rate (CAGR) of 11.3% over this period, which is among the fastest growth rates within its big-box retailer peer group.
Target has also been rewarding its shareholders with generous dividends for decades. The company has increased its dividend for 52 consecutive years, making it a Dividend King. The current annual dividend is $4.40 per share, which translates to a yield of 3.3%. That's more than double the yield of the average S&P 500 listed stock.
Target has been increasing its dividend at a CAGR of 9.8% over the past 10 years, and 10.7% over the past five years. In addition to this strong dividend growth, the retailer's payout is well supported by earnings. Its payout ratio stands at a reasonable 70.5%. Finally, Target's downturn this year in response to the high interest rate environment and reduced consumer spending power means that its shares are trading at under 16 times projected earnings, which is a bargain for a high-quality dividend stock.
Johnson & Johnson: A reasonably priced Dividend King
Johnson & Johnson (JNJ -0.46%) is one of the most reliable Dividend King stocks in the market. The company has a diversified portfolio of healthcare products and services, spanning pharmaceuticals and medical technology. It recently completed the separation of its consumer health business into a new entity called Kenvue, which will allow it to focus on its core growth drivers in the healthcare sector.
J&J has a remarkable history of dividend growth, having raised its dividend for 61 consecutive years. The current annual dividend is $4.76 per share, which gives it a yield of 2.99% at the current price. J&J has increased its dividend at a CAGR of 6.07% over the past decade, and 4.6% over the past five years. That's a respectable dividend growth rate for such a large and stable company. Its dividend is also well supported by its earnings, with a projected payout ratio of only 44% for 2023.
J&J's stock is also attractively valued compared to many of its peers in the healthcare industry. It trades at 14.9 times expected earnings, which is below the average for both big pharma and medtech companies. J&J also has a strong pipeline of new drugs and devices that should help it overcome the challenges of patent expirations and generic competition. J&J is expected to grow its revenue by low single digits over the next two years, which may not sound impressive, but it is enough to sustain its stellar dividend program.
