While dividend paying stocks can be a great source of income, retirees should only invest in businesses that are positioned to make reliable income payments today and for years into the future.
Given this, we asked a team of Motley Fool contributors to share a stock that they think is a great choice for older investors looking to add a dependable income payer to their portfolio. Read on to see what stocks they recommended.
Todd Campbell: Here are some figures for you: $20.4 billion in quarterly revenue, $96 billion in cash and short-term investments, $12 billion in long-term investments, and $29 billion in free cash flow. Do I have your attention? I hope so, because those numbers suggest that Microsoft's (NASDAQ:MSFT) dividend-friendly nature isn't going to change anytime soon.
The software Goliath recently delivered third-quarter results that impressed investors and sent shares surging to nearly 15-year highs. With a new (and better) operating system in Windows 10, a leading position in gaming with Xbox, and a deep entrenchment within corporations, Microsoft is unlikely to see its fortunes sour anytime soon.
In the near term, the installation of more than 110 million copies of Windows 10 on devices is likely to drive revenue for products that are widely incorporated in it, such as the Bing search engine, and upside tied to strong demand for its various refreshed Surface devices and Xbox could lead to strong sales throughout the holidays.
Currently, the dividend yield on Microsoft's shares is 2.68%, but if Microsoft can leverage its recent wins to boost adoption of cloud-based services, such as Office 365, which carry higher margins, then Microsoft's growing cash stockpile could support future dividend increases, and that's why it's one of my favorites for dividend investors of any age.
Dan Caplinger: Regular dividend stocks like the ones my peers have suggested here can be smart moves for investors of all ages, but another area to consider is real estate. Real-estate investment trusts, or REITs, offer substantial yields from the rental and other income they collect, and tax rules require REITs to pay out nearly all of the income they earn in the form of dividend payments.
In particular, healthcare REIT HCP (NYSE:HCP) is especially relevant to those in their 80s, with its emphasis on senior housing properties as well as medical office buildings, hospitals, skilled nursing facilities, and life-sciences laboratories. Within the past few years, HCP has also expanded beyond the borders of the U.S., with properties in the U.K. that give investors some diversification geographically.
Given the demographics of the U.S. population, HCP is at the forefront of a trend that will only accelerate in the years to come. With strong relationships with property operators and a conservative but opportunistic view toward expansion and growth, HCP has the attributes that someone in their 80s can appreciate. With HCP's dividend yield approaching 6% and a 30-year track record of annual dividend increases, it's hard for investors to find alternatives that will give them as much income with as much security as the healthcare REIT offers.
AT&T recently acquired DirecTV, which creates an exciting and unique business opportunity for the company. As CEO Randall Stephenson recently said, "We now have integrated solutions that are unlike any competitor in the market," referring to the fact that AT&T has a wider variety of products to offer than competitors such as Verizon, Sprint, or T-Mobile. The integration allows AT&T to offer more bundled services, and also to cross-sell more services to its existing customers -- which could potentially lead to enticing package deals that could lure customers away from the competition.
Telecom stocks are generally not too volatile, and AT&T is no exception. The stock has a beta of just 0.36, which implies that it is only about 36% as reactive to market moves as the S&P 500. In other words, if the market crashes by 50%, AT&T shareholders should get hit with only an 18% drop -- the stock has a steady revenue stream that should get it through any tough economic conditions that come up. The DirecTV integration could create a little more volatility, but AT&T is likely to remain a low-volatility stock.
As far as the dividend is concerned, AT&T pays a bond-like 5.66% dividend yield, which it has increased every single year for 30 years. So not only does AT&T pay shareholders an excellent income stream, but the income stream also grows over time -- at an average rate of 4.2% per year over the past two decades. An investment in AT&T won't make you rich overnight, but a reliable, high-paying stock like this with room to grow is a great choice, especially for older investors.
Understandably, preservation of capital is important. However, giving yourself an opportunity to keep up with the rate of inflation so your nest egg doesn't lose its true value is important, too. That's why I'd suggest that people currently in their 80s take a look at Wal-Mart (NYSE:WMT).
Why Wal-Mart? For starters, it's an easy business to understand. Wal-Mart sells practically everything, from automotive supplies and jewelry to clothes and groceries. In fact, it's the largest retailer on the planet, employing 2.2 million people worldwide. Its size allows it to undercut its competitors on price and lure in cost-conscious consumers. In other words, it's going to be really tough for a competitor to regularly eat into Wal-Mart's bottom line.
Secondly, it generates a lot of free cash flow. Between 2009 and 2015, Wal-Mart reported between $10.1 billion and $16.4 billion in FCF annually. This cash flow allows Wal-Mart to buy items in bulk at exceptionally low prices, to experiment by diving into new retail ventures (an example would be its smaller "Express" stores), and to pay its market-topping 3.4% dividend yield.Wal-Mart sports below-average stock volatility and a business that will always appeal to cost-conscious consumers. It should be a serious consideration for investors in their golden years.
Brian Feroldi has no position in any stocks mentioned. Dan Caplinger has no position in any stocks mentioned. Matthew Frankel owns shares of AT&T.; Sean Williams has no position in any stocks mentioned. Todd Campbell has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. The Motley Fool recommends Johnson & Johnson and Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.