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3 Dividend Stocks Ideal for Retirees

Matthew Frankel, Neha Chamaria, and Matthew DiLallo, The Motley Fool

When you look for investments in retirement, characteristics such as predictability, low volatility, and income generation are extremely important. Fortunately, you don't have to ditch stocks altogether to find them -- here's why three of our contributors think retirees should take a closer look at National Retail Properties (NYSE: NNN), Duke Energy (NYSE: DUK), and Brookfield Property Partners (NASDAQ: BPY).

A high yield and excellent record of growth

Matt Frankel (National Retail Properties): If you're rolling your eyes because I'm recommending a retail stock, hear me out.

Older couple seated on a couch.

Image Source: Getty Images.

National Retail Properties is a real estate investment trust that invests exclusively in net-lease retail properties. And despite the wave of retail bankruptcies, store closures, and other dismal retail news you may have read about recently, the stock is surprisingly safe. And there are two main reasons why.

First, you'll notice that the bulk of the retail carnage is in areas of the retail industry that are easily disrupted by e-commerce. Department stores are a good example -- you can buy most of the same things online, and these stores simply cannot compete with Amazon and others on price while remaining profitable.

National Retail Properties' tenants, for the most part, operate in areas of retail that aren't particularly vulnerable to e-commerce headwinds. Service businesses are a key example, as are retailers that sell things people need right away. For example, when your car runs out of gas, Amazon.com is unlikely to meet that need. But some of National Retail's tenants can.

Second, the net lease nature of these properties creates a big safety net. A net lease is a long-term lease agreement, typically with an initial term of 15 or more years, and with annual rent increases or "escalators" built in. Better yet, these leases require the tenants to cover the variable expenses associated with the properties -- specifically taxes, insurance, and maintenance. All National Retail needs to do is put a tenant in place and enjoy year after year of predictable, growing income.

That's why National Retail Properties has increased its dividend for 29 consecutive years, including a just-announced 5.3% raise. And, there's no reason to believe this high-yielder's streak of dividend increases is in jeopardy anytime soon.

A proven, low-risk, dividend growth stock

Neha Chamaria (Duke Energy): A utility stock almost always belongs in a retiree's portfolio for two reasons: the resilient nature of the business of providing electricity and gas and the steady dividends that most utilities can afford thanks to stable and sometimes, predictable, cash flows. Duke Energy, with its 4.7% yield, is one such utility that I believe retirees can consider today.

Higher interest rates are considered a dampener for utilities, but I believe the fears are overrated. Duke Energy, for instance, estimates that a 1% increase in interest rates would dent its fiscal 2018 adjusted earnings by only around $0.07 per share. For perspective, the company expects to earn adjusted EPS of $4.55-$4.85 this year.

As for dividends, Duke recently increased its dividend by 4.2%, which is pretty much the rate at which it has grown its dividends in recent years. What's encouraging, though, is that management now aims to grow the dividend annually by 4%-6% through 2022, in line with its projected EPS growth. That should also support Duke's dividend yield of around 4% and boost the stock's returns. If you want to gauge how much dividends matter to the stock's returns, consider that Duke shares have risen nearly 156% in the past 10 years. Without reinvested dividends, the stock would've fetched you only around 58% during the same period.

The biggest growth catalyst for Duke should be the renewable energy projects into which the company's pumping billions of dollars. By 2030, Duke's coal-powered output is projected to halve to only around 16%, making way for cleaner sources like natural gas, solar, and wind. For retirees, Duke's focus on the future of energy, commitment to grow dividends, and a 4%-plus dividend yield makes for a compelling investment thesis.

A real estate-backed income stream

Matt DiLallo (Brookfield Property Partners): Brookfield Property Partners is one of the largest, most diversified real estate companies in the world. Overall, the partnership owns nearly 150 high-quality office buildings in many of the top markets, a sizable stake in 125 of the best mall properties in the U.S., and interests in several other real estate assets including multi-family, self-storage, student housing, and manufactured housing. These properties generate a steadily growing income stream, which supports Brookfield's lucrative 6.6%-yielding distribution to investors.

Brookfield further strengthens the sustainability of its high-yield dividend by only paying out about 80% of its cash flow -- which is conservative for a real estate company -- and maintaining an investment grade balance sheet. That sound financial profile puts Brookfield's payout on a firm foundation.

While that rock-solid income stream alone is enough to make Brookfield an ideal investment for retirees, what pushes it over the top is its growth potential. The company has a three-pronged strategy that puts it on pace to increase cash flow at an 8% to 11% annual pace through at least 2021, driven by rent escalations on existing contracts, a multi-billion-dollar real estate development program, and its ability to continue reinvesting in higher-return opportunities. That growing cash flow stream supports Brookfield's view that it can increase its distribution at a 5% to 8% annual rate over the next several years.

With a high-yielding payout that should grow at a lofty rate in the coming years, Brookfield offers retirees the best of both worlds, making it an ideal stock to own in retirement.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Matthew DiLallo owns shares of Amazon and Brookfield Property Partners. Matthew Frankel has no position in any of the stocks mentioned. Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.