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3 Stocks to Supplement Your Social Security Income

By Chuck Saletta – May 25, 2020 at 11:05AM

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Companies with decent yields with the operations to support their dividends even during an economy-wrecking pandemic are certainly worth considering.

Social Security provides the foundation of most Americans' retirement plans, but even the Social Security Administration admits that the program doesn't provide enough for a comfortable retirement. Seniors looking for a comfortable retirement need to look beyond it to cover their costs. Traditionally, bonds have served as a key source of supplemental income for retirees. Unfortunately, even 30-year Treasury bonds are yielding only around 1.4% these days, making them a less attractive income option.

That makes dividend paying stocks a tempting choice to supplement your Social Security income. Of course, not just any dividend-paying stocks will do. As the coronavirus-related dividend suspensions remind us, dividends are not guaranteed payments. If you go this route, you'll want to focus on companies that look capable of surviving and continuing to reward investors even during this crisis. With that in mind, here are three stocks to consider when looking to supplement your Social Security Income.

pipelines with the setting sun

Image source: Getty Images.

No. 1: North America's largest energy infrastructure company 

Although the demand for energy did drop because of the economic slowdown from efforts to stem the spread of the coronavirus, it didn't cease entirely. People still need to run their homes, essential businesses are still operating, and food is still getting delivered to grocery stores, still operating restaurants, and houses. That energy still needs to get transported from where it's created to where it's used. During an economic slowdown, keeping delivery costs in check becomes very important.

That's where Enbridge (ENB 2.59%) shines. Enbridge operates over 23,000 miles of natural gas and 17,000 miles of crude oil pipelines throughout North America. Pipelines can generally move energy around at a lower cost that trains or trucks. That helps Enbridge remain a strong choice to serve the transportation needs for the energy that is still being consumed.

As a Canadian company, Enbridge's dividend payment does fluctuate a bit when converted to U.S. dollar terms. It did increase its dividend by nearly 10% for 2020, and it's holding that dividend steady despite the challenges in the energy markets. At recent prices, it's offering a yield around 7.3%, and its payout is well covered by its typical operating cash flow. That's a clear testament to the value of owning and operating important infrastructure like energy pipelines, even during a pandemic.

No. 2: A rock-solid insurance company

Rock of Gibraltar

Image source: Getty Images.

Prudential Financial (PRU 1.31%) is an insurance company that's incredibly proud of its financial strength. It's so proud of it, in fact, that it has used the Rock of Gibraltar as its corporate symbol for over 120 years as a way to project that strength. Insurance is the business of pricing and managing risks, and in ordinary times, it's fairly straightforward for an insurance company to price for those risks appropriately. Of course, the coronavirus pandemic represents anything but an ordinary time.

That's where Prudential Financial's financial strength comes in incredibly handy. The company has over $800 billion in assets on its balance sheet, with most of those assets coming in the form of bonds, cash, or other fairly conservative investments. Overall, it has over $60 billion in net equity on its balance sheet, which means it can handle a significant surprise increase in costs and still end up OK.

Earlier this year, Prudential Financial increased its dividend by 10%, and in mid-May, it confirmed that it would continue to pay its dividend at that level this quarter, despite the coronavirus. Even with that kind of financial strength behind it, the market's coronavirus-related worried have increased its yield to around 7.6%. Despite its high yield, its dividend represents only around 60% of the company's trailing earnings, giving decent reason to believe it can be maintained.

A natural gas utility with a well-known subsidiary

Unless you live it its largely Pennsylvania-based service area, you may not have ever heard of the natural gas utility UGI (UGI 2.25%). What you're more likely to have heard of is its propane distribution subsidiary, AmeriGas. In addition to that well-known American subsidiary, UGI has subsidiaries that distribute propane in 17 European countries, giving it a remarkably international reach.

Despite the coronavirus-drive economic slowdown, people still have to heat their homes and cook their food, keeping some revenues flowing to UGI and its subsidiaries. That continuing revenue enabled UGI to recently offer a modest increase to its dividend -- from $0.325 per share per quarter to $0.33. While that's a smaller increase than many investors may have hoped for, in the coronavirus economy, any increase is worth recognizing and celebrating.

At that new dividend rate, UGI's yield is around 4.3%. That payment does represent around 73% of the company's earnings, which is another reason why its increase was modest. Still, with around $300 million in cash on hand and a debt to equity ratio of around 1.7, it looks likely capable of sustaining its new dividend even if the economy takes a little while to fully reopen.

Decent rewards from still needed businesses

Enbridge, Prudential Financial, and UGI all operate in business lines that remain important to even the coronavirus-slowed economy. That has enabled them to maintain -- and yes, even increase -- their dividends at a time when so many other companies have been forced to cut theirs. With yields currently above 4% each to go along with those solid operations, they're all worth considering as a potential investment to supplement your Social Security income.

Chuck Saletta owns shares of Enbridge and Prudential Financial and has the following options: short September 2020 $80 puts on Prudential Financial, short September 2020 $110 calls on Prudential Financial, short January 2022 $100 puts on Prudential Financial, and long January 2022 $100 calls on Prudential Financial. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Prudential Financial, Inc. Stock Quote
Prudential Financial, Inc.
$88.32 (1.31%) $1.14
Enbridge Inc. Stock Quote
Enbridge Inc.
$38.48 (2.59%) $0.97
UGI Corporation Stock Quote
UGI Corporation
$33.62 (2.25%) $0.74

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