Planning for your sunset years is never an easy task. In fact, the chances are that it’s the last thing on your mind. That’s why we picked the retirement stocks to provide a healthy yield and have a positive five-year dividend growth rate.
Millennials are notorious for not saving enough and saddling themselves with a high amount of debt. To combat that, you should have a portfolio of high-quality companies that provides a stable income stream as you get along in life.
Regular dividends are significant when you are planning for your retirement. Unlike swing trading, a speculative trading strategy in financial markets where a tradable asset is held for one or more days to profit from price changes or ‘swings,’ dividend investing is buying stocks through which you can receive a regular income.
Plus, if a company is doing well and paying regular dividends, price appreciation will follow.
So without further ado, here are five great retirement stocks for your portfolio:
- Shell Midstream Partners (NYSE:SHLX)
- Farmers National Banc Corp. (NASDAQ:FMNB)
- Realty Income (NYSE:O)
- Coca-Cola (NYSE:KO)
- Digital Realty Trust (NYSE:DLR)
Retirement Stocks to Buy: Shell Midstream Partners (SHLX)
We start this list with a controversial pick, considering oil prices are depressed. Shell Midstream Partners is a fee-based, growth-oriented midstream master limited partnership formed by Royal Dutch Shell (NYSE:RDS.A, NYSE:RDS.B) to own, operate, develop and purchase pipelines and other midstream assets.
Is this the right time to invest in a company with exposure to the petroleum industry? Markets will take a few years to recover, and interest in alternative energy is growing with each passing day. However, SHLX stock is an income play rather than a growth-oriented one.
The company has grown dividends for five consecutive years. It has a five-year average growth rate of 22.2%. The dividend yield is also a juicy 16.6%. And don’t worry about the company’s ability to maintain its dividend. It has plenty of cash on its books. More importantly, its operating metrics are great. Gross margin and operating margins are an impressive 82.8% and 36.5%, respectively.
The best thing about this stock is that it’s an absolute steal at current rates. SHLX stock has underperformed the stock market over the last year, losing 46.8% versus a 17% gain in the S&P 500. Investors are clearly spooked about the future of the sector. Consequently, the share price is trading at a steep discount to its 52‑week high.
But that’s great news since you can swoop in and pick up this great company at a bargain.
Farmers National Banc Corp. (FMNB)
From a controversial pick to a rather conservative one, Farmers National Banc is a multi-bank holding company offering mortgage loans, personal checking, and a wide range of business products. Despite the pressures that the banking sector is under due to low-interest rates, it has had a stellar 2020.
Over the last six quarters, it beat Wall Street expectations five times. That’s not an easy feat. In the third quarter of 2020, the bank reported growth in loan activity, increased deposits, and a respectable net interest margin. Net income of $10.9 million was 19% higher than a year ago, despite a $2.1 million increase in loan losses provision.
Even in such a tough business environment, the company celebrated 151 consecutive quarters of profitability. At the start of the pandemic, Farmers National helped its commercial and agricultural customers by providing relief on their loans in the form of payment deferrals. However, the fact that deferrals are now down is a testament to its diversified holdings.
Now comes my favorite part, the dividend. FMNB has maintained a very healthy payout ratio of 30.1% despite the virus wreaking several business lines. The dividend yield is an excellent 3.1%, and distributions have grown for five years consecutively. Despite all this, FMNB stock remains at 85% of its 52‑week high, making it one of the more attractive retirement stocks.
Realty Income (O)
Realty Income is a real estate investment trust that invests in freestanding, single-tenant commercial properties subject to a triple net lease (NNN). Under an NNN lease agreement, the tenant or lessee must pay all the property expenses, including real estate taxes, building insurance, and maintenance.
Realty Income owns more than 6,500 properties leased to about 600 tenants across 51 industries. Due to its well-diversified portfolio, Realty Income’s occupancy level has never been below 96% since 1996. We will have to wait for the fourth quarter and full-year results to have a fuller assessment. But until Q3, Realty had received over 93% of rent due, enough to maintain its very healthy monthly dividend.
It’s important to note that REITs must pay at least 90% of taxable income to unitholders. That helps them maintain their tax-exempt status. High payout reduces the risk of management for investors. Before 2020, the company had boosted its monthly payout for 10 consecutive years. Even during the pandemic, the REIT did not cut its dividend. And its yield of 4.7% is top-notch.
Much like the rest of the REIT sector, O stock is down substantially, 21.% over the last year. However, its five-year return is 9%, which is respectable considering how badly prices fell last year.
Remember, you are not investing in this one purely for the price appreciation. This one has a solid history of delivering reliable, stable income for your portfolio. That’s the unique selling point for me.
At a market cap of $208.47 billion, Coca-Cola is one of the world’s largest multinationals. It has 500 beverage brands sold in 200 countries, though 70% of Coke’s unit sales are still from sodas. It’s a truly global company in every sense of the word. The bulk of revenues are based outside of the U.S.
In the last six quarters, it has stitched together four consecutive positive earnings surprises. The company recently reported earnings per share of 55 cents, adjusted, versus the analyst estimates of 46 cents per share. Revenues came in at $8.65 billion versus a consensus estimate of $8.36 billion.
That’s pretty impressive, considering purchases at movie theaters, restaurants, and offices remain restricted due to the pandemic.
However, at-home demand is making up for the lack of in-person sales. CEO James Quincey has said that the company is outpacing Pepsi (NASDAQ:PEP) in away-from-home business.
No surprises, given its success, that Coca-Cola has managed to increase its dividend each year since 1962. KO stock comes with a dividend yield of 3.4% and a five-year dividend growth rate of 4.4%.
I find it amazing that KO stock hasn’t bounced back strongly from March lows with such a consistent track record. I guess markets remain more enamored with electric vehicle stocks and SPAC plays at the moment. However, if you are picking retirement stocks, then the key is stability. And you can’t get more reliable than KO stock.
Digital Realty Trust (DLR)
Our last entry on this list is another REIT. Digital Realty owns and operates over 275 data centers worldwide, with more than 30 million rentable square feet across five continents.
Unlike the other picks on this list, DLR stock has outperformed its sector by 22.4% in the past year. Why that is so is pretty obvious. While the broader real estate sector has underperformed the market, this subsegment is growing fast. According to a report, the global data center construction market size is anticipated to reach $121.56 billion by 2027, expanding at a compound annual growth rate of 8.5% from 2020 to 2027.
During the first nine months of 2020, its total revenue came to $2.8 billion, an increase of 17% year-on-year. The acquisition of Interxion dented its bottom line greatly. However, guidance for 2020 is still positive. DRL is now expecting FFO per share between $6.10 and $6.15, up from $6 to $6.10 previously.
The dividend yield is a solid 3.3%, and distributions have increased 10 consecutive years. Payouts have a five-year average growth rate of 5.7%, and coverage is solid at 55.9%. Cash has grown at a CAGR of 12% over the last five years. There is little chance that the distribution will be in trouble any time soon.
The last thing we should talk about is valuation. That is one area where DLR can look unattractive. Shares are trading at 60x price-earnings versus the industry, which trades at 27.1x. Most analysts and investors agree that the virus is a boon for the data center industry. Hence, the markets are reflecting that sentiment.
However, remember that DLR stock is an income play, like most other retirement stocks on this list.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.