nbc news Dividend stocks make for a great investment choice if you're looking to boost your income in retirement. But the key lies in selecting strong dividend-paying companies with solid growth avenues and
financials to ensure they can sustain dividends during difficult times and offer a nice raise when things are smooth. Finding such a company, however, isn't an easy job.
Keeping that in mind, we asked our contributors to suggest dividend stock ideas that are perfect for retirees to own. Here are six names to consider.
Jason Hall: Phillips 66 (NYSE:PSX) is a rare business which can potentially provide three things especially important to retirees: Capital preservation; income; opportunity for long-term growth.
This chart will help me explain:
PSX Total Return Price Chart
PSX Total Return Price data by YCharts
Not only has the company's stock held up well, but it's actually outperformed the market since the 2014 oil peak. Here's why.
In short, Phillips 66's operates in the midstream and downstream segments of the oil and gas business. That means limited exposure to commodity price swings, since its services are largely based on volume. And its petrochemicals and refining businesses, which are exposed to some commodity impact, have strong competitive advantages which turn those potential weaknesses into strengths.
In other words, the company is -- while not immune -- far less exposed to energy prices than oil-drilling peers, and has actually benefited from cheap American oil and gas.
Factor in steady demand for its products and services, and Phillips 66 produces consistent operating cash flows that it returns to shareholders in dividends and share buybacks. However, management retains enough cash to focus on organic expansion, expanding its high-demand pipeline and petrochemicals businesses.
Add it all up, and Phillips 66 is an ideal stock for retirees to invest in for the long-term.
Beth McKenna: American Water Works (NYSE:AWR), the largest investor-owned water and waste water utility in the United States, would make a great addition to many retirees' portfolios. It spouts, to varying degrees, the trio of qualities Jason mentioned that are important to many retirees: capital preservation, potential for long-term growth, and income.
The company's stock has considerably outperformed the market over the long term while incurring considerably lower-than-market risk. Since its April 2008 IPO, the stock's total return is 247%, whipping the S&P 500's return of 79%. It sports a beta of 0.25, which means it has just one-quarter of the risk of the overall market, in terms of stock-price volatility.
American Water Works' potential for future long-term growth looks just as bright. Its size means that it should continue to be very successful at gobbling up smaller utilities in this very fragmented industry. Additionally, demand for fresh water should grow as the population increases, while supply will probably shrink because the Earth is in a long-term warming trend. The company can particularly benefit from this supply-demand equation in its non-regulated segment, where it can set its own rates.
The dividend yield is currently 2.4%, which is on the low side for dividend-paying stocks. However, it's important for retirees who invest in higher-yielding, yet more volatile and higher-risk, stocks to balance their portfolios with stocks such as American Water Works.
Adam Galas: I recommend Enterprise Products Partners (NYSE:EPD) in a taxable account since it's an MLP and thus comes with certain tax benefits
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Why Enterprise? Three main reasons: its yield, conservative distribution policy, and stupendously consistent growth record that is likely to continue for decades to come.
Enterprise Products Partners currently yields 6% secured by one of the highest 12 month distribution coverage ratios in the industry, 1.87.
That means that not only is the payout rock-solid, but also that Enterprise is generating a massive amount of excess distributable cash flow or DCF, which is generated by Enterprises' long-term fixed-fee contracts that create a toll-booth like river of recurring cash flow, that is almost entirely immune from volatile energy prices.
Speaking of growth Enterprise Products Partners has an amazing 45 straight quarters of distribution growth under its belt.
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