Augment Your Social Security Check With These 3 Dividend Stocks

Social Security alone isn't enough to cover a retiree's living expenses. For someone who retired last year, Social Security will only replace about 37% of their earnings from employment. That leaves a big gap to fill, which will likely grow even wider for future retirees.

Because of that, those nearing retirement need to find ways to augment Social Security. Investing in high-quality dividend stocks is a great option. Enbridge (ENB -1.21%), Williams (WMB -0.48%), and NextEra Energy (NEE -1.36%) stand out to a few Fool.com contributors as excellent ways to potentially supplement Social Security. Here's why they think retirees should consider adding these dividend stocks to their portfolios.

This big yield comes with a plan

Reuben Gregg Brewer (Enbridge): To get the dividend bonafides out of the way up front, Enbridge is offering investors a generous 7.1% dividend yield. The dividend has been increased annually for 28 consecutive years. The average annualized increase over the past decade was around 8%, though future increases are more likely to be in the low- to mid-single digits. That, however, should easily be enough to keep the buying power of your dividends on pace with the historical inflation growth rate.

From a business perspective, Enbridge owns oil pipelines, natural gas pipelines, a natural gas utility operation, and renewable power assets. Over the past decade or so, Enbrige has made a concerted effort to reduce its exposure to oil and increase its exposure to cleaner alternatives, like natural gas and wind power.

Natural gas has been a bigger focus because it is helping support the slow transition toward less carbon-intensive energy sources. The offshore wind farms the company is building, meanwhile, create a foundation in zero-emission energy off of which it can continue to expand over the long term. The company's operations are largely fee-based, regulated, or involve long-term contracts, so cash flows are highly reliable.

Enbridge is a great example of providing for today's energy needs while building for a cleaner tomorrow. If all of that isn't enough to entice you to take a look, note that the North American midstream giant's balance sheet is also investment-grade rated. This stock checks off so many boxes, retirees would be remiss if they didn't do a deep dive.

A rock-solid and steadily rising payout

Matt DiLallo (Williams): Natural gas pipeline giant Willams pays a very durable dividend. The company backs its payout, which currently yields 5.3%, with incredibly stable earnings. Long-term contracts and government-regulated rate structures provide the bulk of its revenue, limiting the volume and commodity price risk to a minimum.

Williams pays out a conservative percentage of its steady cash flow to shareholders via dividends. The company expects to produce $4.7 billion to $5.1 billion, or $3.86-$4.18 per share, of available funds from operations (FFO) this year. That's enough to cover its current dividend payment by 2.25 times at the midpoint. It will allow Williams to retain substantial cash to fund its continued expansion while maintaining a strong balance sheet.

The pipeline giant plans to invest $1.6 billion-$1.9 billion in expansion projects this year. These projects will help increase its cash flow as they come online. They're part of a large and growing project pipeline, supporting Williams' view that it can grow by 5% to 7% per year over the long term. That should give Williams the fuel to continue increasing its payout. It has expanded its dividend at a 6% compound annual rate since 2018, including by 5.3% this year.

Williams further supports its dividend with a strong balance sheet. It expects its leverage ratio to be around 3.7 times this year, an improvement from 4.8 times in 2018. That supports its investment-grade bond rating and gives Williams lots of financial flexibility to capitalize on new opportunities. For example, the company made several acquisitions last year to help fuel growth in 2023 and beyond.

Williams offers investors a very sustainable dividend. And that makes it a great option for those seeking to supplement Social Security with some steadily rising dividend income.

A compelling dividend stock

Neha Chamaria (NextEra Energy): NextEra Energy's dividend yield of 2.6% may not be high, but the company has not only paid a dividend regularly for several decades now but has also increased it every year since 2007. Also, the pace of growth in its dividends has been impressive: Between 2007 and 2022, the company's dividend per share grew at a compound annual growth rate of 9.9%.

What are the chances that NextEra Energy will continue to grow its dividends? High, considering the company's business profile. NextEra Energy owns the largest electric utility in the U.S., Florida Power & Light Company (FPL). It also owns and operates a clean-energy company called Energy Resources, which is already the world's largest generator of wind and solar energy power. It's a win-win combination of a traditional, steady cash-flow generating utility and a growth-oriented business.

NextEra Energy is pumping billions of dollars into both businesses. On FPL alone, the company expects to spend $32 billion or more between 2022 and 2025. As for Energy Resources, it already has a backlog of nearly 20 gigawatts (GW) in wind, solar, and storage contracts. That's a lot, given its existing operational capacity of roughly 31 GW.

NextEra Energy expects these investments to drive its adjusted earnings per share 6% to 8% higher through 2026 than its expected 2024 range. It also expects to increase its dividend per share by around 10% next year. All this makes NextEra Energy a highly bankable dividend stock, one fit for a retiree's portfolio.