Dividend stocks can be a critical part of any retirement plan. Over time, the dividends you accumulate from these types of investments can help build up a significant nest egg, especially from companies that also regularly increase their payouts.
Three stable dividend stocks that can be solid investments to hold on to until you retire are Bristol Myers Squibb (BMY 0.34%), Apple (AAPL -0.35%), and Verizon Communications (VZ 1.17%). Let's learn why.
1. Bristol Myers Squibb
Healthcare giant Bristol Myers Squibb pays a dividend that yields 3.9% -- that's more than double the S&P 500 average of 1.6%. What's more, the global pharmaceutical company has a diverse business that it plans to bolster.
Bristol Myers Squibb has more than 45 compounds that are currently in development and it is studying over 40 disease areas. Last year, it invested $9.5 billion into research and development as it looks to find avenues to grow and battle losses in exclusivity for its top drugs such as Eliquis and Opdivo.
Through the first six months of 2023, revenue from its new product portfolio has risen by 91% to just under $1.6 billion. And even its existing in-line products brought in $17.3 billion, growing at a stable 2% year over year.
Last year, the company increased its quarterly dividend from $0.54 to $0.57. And with a payout ratio of around 60%, there's room for more rate hikes in the future. For long-term investors, the healthcare stock can be an ideal investment to hold as it's trading at an incredibly cheap forward price-to-earnings multiple of less than 8.
2. Apple
Apple may seem like an odd choice for a dividend stock as it has a fairly low yield of less than 0.6%. But what makes the tech giant an underrated income investment is its potential for future dividend increases.
Earlier this year, the company increased its dividend from $0.23 to $0.24. It's a relatively modest hike, but the company also primarily rewards shareholders through buybacks. At the time of the dividend announcement, it also said its board had authorized up to $90 billion in additional share repurchases.
The company's robust financials give Apple plenty of room to pump more money into the dividend or buybacks as it sees fit. Apple has generated more than $24 billion in free cash flow in each of the past three quarters, which is well above the less than $4 billion it pays in quarterly dividends.
Despite its high-priced iPhones and iPads, Apple is proving to be relatively resilient during inflation. Through the nine-month period ending July 1, revenue of $293.8 billion was down just 3% from the same period last year. For a company that makes expensive consumer products, that's not a big decline at a time when people are struggling with rising costs and looking to trim their bills.
Even if there are further headwinds this year, the company's strong brand makes Apple a great investment to hang on to for not just years, but decades, as it'll be in excellent shape to bounce back. And over that time frame, it's likely that its dividend will rise significantly.
3. Verizon Communications
The highest yield on this list belongs to telecom giant Verizon Communications. At 8%, it has a mouthwatering payout that almost seems too good to be to true. The stock is down around 15% this year as its results have been underwhelming. Fears of a big bill due to lead-covered cables have given bearish investors an additional reason to stay away.
But Verizon's business remains in solid shape. It's a leading telecom company that recently announced it will be increasing its dividend for a 17th consecutive year -- the longest streak in the industry. And despite the fears from some investors, the dividend is safe as Verizon's payout ratio is around 50% of earnings.
Concerns about lead-covered cable are premature as it's far too early to know how much of a cost that will be for the business and over how long of a time frame it would need to be incurred. Either way, with such a manageable payout ratio, Verizon's in good shape to weather the storm on that front.
Although it is facing headwinds, Verizon still expects its wireless service to generate revenue growth of up to 4.5% this year. For dividend investors, Verizon remains an excellent investment worth hanging on to until retirement.
