Generating safe, regular income and preserving capital are two primary objectives in retirement. The best retirement stocks to buy, then - whether you're buying in 2019 or any other year - must be quality dividend payers that can help meet both of those goals in the long-term.
Unlike many fixed-income investments, numerous dividend stocks offer relatively high yields, grow their payouts each year and appreciate in price over time as their businesses generate more profits and become more valuable.
Not all dividends are safe, however. From
These are the 19 best retirement stocks to buy for 2019. Research firm Simply Safe Dividends developed a Dividend Safety Score system that has helped investors avoid more than 98% of dividend cuts, including each of those companies listed above. The 19 stocks on this list have solid Dividend Safety Scores and generous yields near 4% or higher, making them appealing retirement stocks for income. Importantly, they also have strong potential to maintain and grow their dividends in all manner of economic and market environments.
Brookfield Infrastructure Partners LP
Market value: $10.4 billion
Distribution yield: 5.0%*
Distribution growth streak: 10 years
As a result,
This MLP sports an investment-grade credit rating, more than $2 billion in liquidity and numerous opportunities for growth as countries around the globe continue building, expanding and upgrading their infrastructure. All this should keep the partnership's payout on solid ground.
It's also worth noting the partnership structures its activities to avoid generating unrelated business taxable income. Therefore, unlike most limited partnerships that can have more complicated taxes, Brookfield's units (shares of ownership in an MLP) are suitable for owning in retirement accounts.
As a Canadian company,
* Distribution yields are calculated by annualizing the most recent distribution and dividing by the share price. Distributions are similar to dividends but are treated as tax-deferred returns of capital and require different paperwork come tax time.
Crown Castle International
Market value: $47.5 billion
Dividend yield: 3.9%
Dividend growth streak: 4 years
The real estate investment trust (REIT) makes money by leasing out its towers and small cell nodes to wireless service providers such as
Besides its low-risk business model, CCI is one of the best retirement stocks due to its conservative management. The company maintains an investment-grade balance sheet and has an adjusted funds from operations (FFO, an important measure of REIT profitability) payout ratio just below 80%, which is very healthy.
Duke Energy
Market value: $64.7 billion
Dividend yield: 4.1%
Dividend growth streak: 14 years
Thanks to their predictable earnings, generous dividend payments, and defensive business models, regulated utilities are a cornerstone of many retirement portfolios. They also account for many of the best recession-proof stocks highlighted by Simply Safe Dividends.
Duke Energy (DUK, $90.75) is no exception. The regulated utility serves 7.6 million electric customers and 1.6 million gas customers spread across the
"Duke's regulatory environment stands out among its peers and is supported by better-than-average economic fundamentals in its key regions," writes Morningstar senior equity analyst
Thanks to these qualities, Duke Energy can profitably grow its operations with little risk. Management is in the middle of executing a $37 billion growth capital plan between 2018 and 2022 that is expected to generate 4% to 6% annual earnings expansion.
If successful, Duke Energy's dividend should grow at a similar rate and should remain on solid ground thanks to an expected 70% to 75% payout ratio and solid investment-grade credit rating. The utility has paid dividends for 92 consecutive years, and that track record shows no signs of stopping anytime soon.
Enterprise Products Partners LP
Market value: $49.1 billion
Distribution yield: 6.6%
Distribution growth streak: 20 years
MLPs have had a rough couple of years. A handful of factors - including crashing oil prices, regulatory pressure and tax headwinds - have not only pressured unit prices, but also forced distribution cuts and major restructurings.
Enterprise is one of the largest midstream energy companies with around 50,000 miles of pipelines and has long been conservatively managed. For example, the firm eliminated its incentive distribution rights in 2002, has one of the highest credit ratings (BBB+) in the midstream energy sector and has maintained an excellent distribution coverage ratio of 1.6x through the first nine months of 2018.
Importantly,
Overall,
Exxon Mobil
Market value: $320.0 billion
Dividend yield: 4.3%
Dividend growth streak: 36 years
Exxon is a fully integrated energy major, which means it operates globally along the entire hydrocarbon value chain. Argus analyst
Simply put, XOM is among the most resilient and conservative businesses in the energy sector, which has helped it pay dividends for more than a century while increasing its payout for 36 consecutive years.
While many integrated oil firms are pulling back on growth in today's volatile energy environment, Exxon's management plans to invest approximately $200 billion between 2018 and 2025 to potentially more than double its operating cash flow. Even if oil prices average $40 per barrel, cash flow still is expected to rise 50% from these investments.
Management's plans to ramp up capital expenditures are ambitious, but Exxon deserves the benefit of the doubt due to its excellent capital allocation track record and financial conservatism. The company's dividend should remain safe, and its growth potential could improve if everything goes well.
Flowers Foods
Market value: $4.0 billion
Dividend yield: 3.8%
Dividend growth streak: 16 years
The fresh bakery market is very large and mature. As people continue eating in all manner of economic environments, it is also a recession-resistant industry. In fact, Flowers sales dipped just 2.6% during the financial crisis, and its stock lost just 1% while the
FLO also continued raising its dividend during this time - something it has done for 16 consecutive years. While Flowers will never be a fast-growing business, it should remain a reliable cash cow for years to come. With an investment-grade credit rating and a payout ratio below 80%, management is running the business in a manner that should ensure safe dividends as well.
Healthcare Trust of America
Market value: $5.6 billion
Dividend yield: 4.5%
Dividend growth streak: 5 years
Roughly two-thirds of the firm's properties are located on or adjacent to the campuses of major health-care systems. As a result of this convenience and the high volume of patients coming through these areas,
Once a physician group is established in a particular territory with a steady flow of clients, they are reluctant to relocate. For this reason, medical office buildings have a high tenant retention rate in excess of 80% on average. Physician rent coverage ratios are also strong, exceeding 8x on average and reducing the risk profile of
Besides focusing on the more attractive and predictable areas of healthcare, management has done a nice job diversifying the business. Specifically, no market accounts for more than 13% of the company's square footage, and no tenant accounts for more than 5% of leased assets.
Besides being defensive in nature, the company's cash flow should also continue growing in the coming years.
HTA boasts an investment-grade balance sheet and a reasonable adjusted FFO payout ratio just below 90%. Thus,
Kimberly-Clark
Market value: $40.7 billion
Dividend yield: 3.4%
Dividend growth streak: 46 years
Kimberly-Clark (KMB, $117.42) manufactures a variety of tissue and hygiene products under well-known brands such as Huggies, Kleenex, Kotex and Scott. A key to the company's long-term success - which includes 46 consecutive years of dividend increases - is its longevity.
With roots tracing back to 1872, Kimberly-Clark has had more than 140 years to build distribution relationships, develop innovative products and pour money into marketing its products.
While these markets are extremely competitive, Morningstar sector director
Lash also says Kimberly-Clark spends a whopping $1 billion annually, or 5% of sales, on these categories.
Cutting costs is another core competency in this mature sector. Management seeks to take out at least $1.5 billion in supply-chain costs between 2018 and 2021, helping the company keep its bottom line growing. Combined with the fact that approximately 20% of the firm's revenue comes from developing and emerging markets, Kimberly-Clark should have no trouble continuing its impressive dividend growth streak.
Leggett & Platt
Market value: $4.7 billion
Dividend yield: 4.2%
Dividend growth streak: 47 years
Despite being a lesser-known business,
The company's success is spread across a number of engineered components such as mattress springs, armrests, steel wire and seat frames. These products are used in many different end markets, including bedding, flooring, furniture, automotive and consumer products. However, no business accounts for more than 20% of total sales - that's strong diversity in the revenue stream.
Looking ahead, management seeks to grow revenue by 6% to 9% annually and targets a dividend payout ratio between 50% and 60% of earnings, providing a reasonable margin of safety. While this can be a more cyclical business,
Magellan Midstream Partners LP
Market value: $13.2 billion
Distribution yield: 6.7%
Distribution growth streak: 16 years
Magellan essentially connects refineries to various end markets via the longest refined petroleum products pipeline system in the
Importantly, approximately 85% of the firm's operating margin is comprised of fee-based, low-risk activities that are insensitive to commodity price fluctuations. As a result of its stable cash flow, the partnership has managed to pay higher distributions for 16 consecutive years.
Magellan's impressive track record has also been made possible by its conservative management team. The partnership enjoys a BBB+ credit rating, making it one of the highest-rated MLPs, and it has minimal dependence on equity markets to grow. In fact, Magellan has only issued equity once in the past decade.
Magellan's distribution safety also is supported by the firm's desire to maintain a conservative 1.2x coverage ratio. As
National Health Investors
Market value: $3.3 billion
Dividend yield: 5.0%
Dividend growth streak: 9 years
In theory, senior housing is an attractive industry. Healthcare spending is growing faster than the broader economy as America's population continues aging, and people need a place to live. However, tenants tend to have lower coverage ratios, and skilled nursing service providers often derive a meaningful amount of their revenue from government-funded reimbursement programs such as Medicare.
Fortunately,
Additionally,
While
National Retail Properties
Market value: $8.1 billion
Dividend yield: 4.0%
Dividend growth streak: 29 years
Risk is further reduced by management's focus on diversification. The firm's largest industry exposure is convenience stores, which account for 18.5% of rent, followed by full service restaurants (11.8%), limited-service restaurants (7.8%) and automotive service stores (7.6%).
Unlike certain parts of brick-and-mortar retail that are under pressure, National Retail's business remains very strong. Its occupancy rate stands at 98.7%, and as CFRA equity analyst
"We think NNN is more insulated from retailer woes compared to peers as most of NNN's tenants are either restaurants or retailers focused on necessity-based shopping such as convenience stores, auto parts/service centers and banks."
National Retail has increased its dividend 29 consecutive years and should have no trouble continuing its streak for the foreseeable future. Besides the company's solid business model, National Retail also boasts an investment-grade credit rating and maintains a conservative payout ratio near 70%.
Occidental Petroleum
Market value: $49.2 billion
Dividend yield: 4.8%
Dividend growth streak: 16 years
While the energy sector is not known for its stable dividends, Oxy has paid uninterrupted dividends for more than a quarter of a century, including 16 consecutive years of dividend growth.
Following the oil price crash in recent years, Oxy has doubled down on its efforts to take costs out of its business and shed non-core assets to remain in good financial health. For example, Morningstar senior equity analyst
Even at $40-per-barrel oil prices, management believes the company can pay the dividend and maintain production. With a low breakeven cost, growing production, an "A" credit rating and a balanced cash flow stream thanks to its integrated operations, Oxy is well-positioned to continue paying (and growing) its dividend.
Conservative investors just need to be aware that the stock's price is sensitive to the price of oil, so a stronger stomach is required to hold Oxy for the long-term.
Oneok
Market value: $24.8 billion
Dividend yield: 5.7%
Dividend growth streak: 16 years
Oneok (OKE, $60.19) owns roughly 38,000 miles of natural gas liquids and natural gas pipelines, providing midstream services to energy producers, processors and end users. The company reaches some of the largest and most important shale formation in the country, including the Permian basin and Bakken shale of
Essentially, Oneok helps connect American energy supply with worldwide demand. As low-cost domestic energy production rises across the basins where it operates, Oneok's infrastructure becomes even more important, and the company should be able to continue adding to its $6 billion backlog of organic growth projects.
Despite its ties to the energy industry, commodity prices only directly affect 15% of the firm's earnings, which is down from more than 30% in 2013. Approximately 85% of Oneok's profits are tied to fixed rate long-term contracts, providing very predictable cash flows.
Combined with the firm's investment-grade balance sheet and distributable cash flow payout ratio near 75%, Oneok's dividend is on firm ground and even has the potential to expand as the company executes on its growth projects.
In fact, management targets 9% to 11% annual dividend growth through 2021 and expects to maintain annual dividend overage of at least 1.2 times. Even better, since Oneok is a corporation rather than an MLP, investors can own the stock without worrying about tax complexities or unique organizational risks.
Public Storage
Market value: $35.5 billion
Dividend yield: 3.9%
Dividend growth streak: 0 years
Although
With more than 2,400 self-storage facilities in the
The storage industry is an appealing area for retirement portfolios to invest because of its defensive nature. While there are arguably few enduring competitive advantages in this space since new supply can always be built, the overall economics are still attractive.,
For example, in the third quarter of 2018,
Combined with the relatively low maintenance costs of storage facilities and the recession-resistant nature of demand,
Realty Income
Market value: $19.6 billion
Dividend yield: 4.0%
Dividend growth streak: 25 years
As Morningstar equity analyst
"Over 90% of rental revenue is composed of tenants with non-discretionary, service-oriented, or low-price components to their businesses. This exposure, combined with traditionally long leases of approximately 15 years on average, provides the company with a steady and reliable stream of cash flows."
In total, Realty owns more than 5,600 commercial properties that are leased to 260 tenants operating in 48 industries. No tenant is greater than 7% of rent;
This diversification, along with the REIT's A- credit rating from S&P and adjusted FFO payout ratio near 80% all support the safety of its dividend going forward. While growth will never light up the world,
Telus
Market value: $20.9 billion
Dividend yield: 4.7%
Dividend growth streak: 14 years
Telus (TU, $34.84) is one of the largest telecom companies in
Outside of cable TV, which is under pressure from cord-cutting, telecom services are generally inelastic. In fact, during the financial crisis, Telus' revenue dipped just 1%, according to data from Simply Safe Dividends.
The mature state of the industry, along with its capital intensity, also makes it very difficult for new rivals to enter the market.
For these reasons, Telus seems likely to remain a solid cash generator and a reliable dividend payer. Management targets a conservative payout ratio between 65% and 75%, as well as an annual dividend growth rate between 7% and 10% through 2019.
Given the excellent cash flow and overall strong financial health, Telus seems likely to continue delivering for retired income investors.
Verizon
Market value: $235.9 billion
Dividend yield: 4.2%
Dividend growth streak: 12 years
While
With more than 116 million connections and coverage of 98% of the
Thanks to these investments, Verizon consistently scores at the top of RootMetrics's report ranking wireless carriers in reliability, data and call performance for 10 straight reports in a row.
Given Verizon's massive subscriber base, the slow-growing nature of the industry, and the costs required to maintain a nationwide network, it is next to impossible for smaller upstarts to try and entry the industry.
Verizon therefore generates very predictable earnings and moderate bottom-line growth, supported by management's plans to take $10 billion of costs out of the business by 2021.
VZ has an investment-grade credit rating and earnings payout ratio near 50% - factors that are factors are very supportive of Verizon's dividend safety.
W.P. Carey
Market value: $11.4 billion
Dividend yield: 5.8%
Dividend growth streak: 19 years
In business for more than four decades,
The diversified REIT's cash flow is very stable thanks to its diversification (top 10 tenants represent 24% of rent), long-term leases (average length remaining of 10.5 years), focus on acquiring assets essential to a tenant's operations (occupancy above 96% since 2007) and contractual rent increases (99% of leases have them).
These factors, along with its investment-grade credit ratings from Moody's and S&P, have helped
In fact, Simply Safe Dividends even lists the firm as one of the best high-yield stocks.
Brian Bollinger is a Contributing Writer at Kiplinger.