Retirement signifies a monumental shift in the way you invest. Not only are you trying to throw off some cash to supplement your income, you also want your principal to grow somewhat so you aren't eating into your nest egg too quickly. One great way to walk this fine line is to invest in top-quality dividend stocks that are going to pay you income to own them and still have some room to grow over time.
With this in mind, we asked three of our Fool.com contributors to highlight a stock they consider a great dividend stock for someone in retirement. Here's why they picked Starbucks (NASDAQ: SBUX), Verizon Communications (NYSE: VZ), and Brookfield Renewable Partners (NYSE: BEP).
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Still in growth mode after 47 years
Brian Feroldi (Starbucks): Starbucks opened its first location in 1971, so you'd be forgiven for assuming that this business has turned into a slow-moving giant. After all, the company currently operates more than 27,000 stores globally. Surely the growth story is coming to an end soon, right?
I firmly believe that the answer to that question is "no." Not only is Starbucks still in growth mode -- sales and non-GAAP earnings grew by 14% and 18%, respectively, last quarter -- but there are plenty of reasons to believe that it can continue to expand from here.
So what are those reasons? Here are a few that excite me:
- International expansion: Starbucks is on fire in huge countries like China, and there is still plenty of room for store growth in many international markets.
- Ultra-premium coffee: The company's new Roastery stores are being rolled out across the world and promise to help Starbucks appeal to ultra-premium coffee drinkers.
- Consumer packaged goods: Have you noticed that you can now buy Starbucks products in grocery and convenience stores? This allows the company to monetize customers who love the brand but don't visit the stores regularly (like me).
- Food, tea, and cold drinks: Starbucks is working to broaden its portfolio of products in an effort to appeal to non-coffee drinkers.
When combined with share buybacks, I'm confident that these factors will allow Starbucks to grow its profits by double digits for years to come. Adding in a market-beating dividend yield only sweetens the deal.
The top wireless carrier in America
Leo Sun (Verizon Communications): Verizon is the top wireless carrier in the U.S. It also has a large wireline business and an expanding media and internet presence, thanks to its acquisitions of AOL in 2015 and Yahoo!'s internet business in 2017. Those businesses give it a wide moat against rivals like AT&T.
Verizon pays a forward dividend yield of 4.6%, which is more than double the S&P 500's current yield of 2%. It's raised that dividend annually for over a decade, and spent 31% of its earnings and 91% of its free cash flow on those payments over the past 12 months.
Verizon's growth might seem glacial, since analysts expect its revenue to rise just 3% this year and 1% next year. Verizon's earnings are expected to grow 22% this year, thanks to tax benefits, before increasing just 2% next year.
However, Verizon still consistently adds customers, with an addition of 220,000 postpaid smartphone subscriptions last quarter. It also posted wireless gains in connected devices, like wearables, which offset declines in tablet and prepaid phones. Looking ahead, the expansion of Oath -- the merged businesses of AOL and Yahoo!'s internet properties -- could also yield lucrative bundling opportunities in streaming media and internet ads.
Verizon is a slow-growth stock, but it trades at just 10 times forward earnings. That low valuation, coupled with its high yield and the company's wide moat, makes it an ideal stock for retirees.
Income you can rely on for years
Tyler Crowe (Brookfield Renewable Partners): A great income stock for someone in retirement will supply two essential things: (1) The ability to provide a reliable payout at a decent yield for years into the future and (2) the potential for at least modest growth to combat the scourge of inflation. There aren't many businesses out there that can provide a combination of these things better than Brookfield Renewable Partners.
Brookfield Renewable Partners owns and operates 16,000 megawatts of power-generating facilities worldwide including hydro dams, utility-scale solar installations, and wind farms. It ensures that it generates stable revenue and cash flow by locking in customers with long-term power purchasing contracts. This kind of business plan isn't unique to Brookfield, as almost all other power-generating companies claim the same thing. What sets Brookfield apart from others is its approach to capital allocation, growth, and its payout.
I know it sounds agonizingly simple, but Brookfield's patient and conservative approach has been a key component to its success since it went public in 2000. The company has maintained an investment-grade credit rating, targeted modest payout growth, and has been willing to invest in places that others wouldn't. That's how it was able to gobble up lots of hydroelectric dams in Brazil on the cheap and acquire the solar power assets of the now-defunct SunEdison. By adding assets when the price is right, Brookfield has been able to grow its total return by 16% annually since its IPO.
Investing in high-yield businesses means you can count on the management team to be good stewards of shareholder capital. Over the years, Brookfield Renewable Partners has proven to be just that. If you are in retirement and looking to add some income stocks for the long haul, Brookfield Renewable Partners is certainly one to consider.
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Brian Feroldi owns shares of Starbucks. Leo Sun owns shares of T. Tyler Crowe owns shares of Verizon Communications. The Motley Fool owns shares of and recommends Starbucks and Verizon Communications. The Motley Fool has a disclosure policy.