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3 Dividend Stocks That Are Perfect for Retirement

Tyler Crowe, Rich Duprey, and Travis Hoium, The Motley Fool

Even when you are in or about to enter retirement, you will still want to have a portion of your nest egg in the stock market. Sure, you may not be pursuing volatile growth stocks anymore, but a basket of reliable dividend-paying stocks can help to build your savings or provide income today.

So we asked a few of our investors to each highlight a stock they see as a great choice for a retirement portfolio. Here's why they picked Phillip Morris International (NYSE: PM), NextEra Energy Partners (NYSE: NEP), and Helmerich & Payne (NYSE: HP)

Binder with a retirement plan label on a desk with charts.

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A solid sin stock

Rich Duprey (Philip Morris International): One of the main attractions of tobacco stocks for retirees has been their consistent and generous payouts to investors. Philip Morris International is no different in that regard, paying a dividend that currently yields 4.2%. It also just raised its quarterly dividend 2.9% to $1.07 a share, from $1.04 a share.

While the tobacco industry is one in decline, with fewer smokers every year, cigarette use is very inelastic, meaning the tobacco companies are able to raise prices with virtual impunity and not lose as many smokers as you might think. Even so, even the industry realizes a change is coming, and they're gearing up for a day when the future is smoke-free.

Philip Morris has developed the leading electronic cigarette called the iQOS, which is being marketed under Altria's (NYSE: MO) Marlboro brand as HeatSticks. Using a heat-not-burn technology, it heats tobacco until it creates a vapor rather than smoke. The reduced-risk product is quickly catching on where it has been introduced.

Philip Morris has an application under review with the Food and Drug Administration to earn it a reduced-risk product label, and if it is granted, it will give the global tobacco giant a significant competitive advantage.

For investors, buying Philip Morris stock enables them to get in early on what is sure to be the future of e-cigs, while also giving them the potential to benefit from what many feel is the inevitable acquisition by Philip Morris of Altria. This is a stock that ought to perform well over the long haul for any retirement portfolio.

A rock-solid renewable energy dividend

Travis Hoium (NextEra Energy Partners): In retirement, one of the biggest concerns for investors is generating consistent cash flow, or dividends. Companies like NextEra Energy Partners, which owns renewable energy assets with decade-plus long contracts to sell energy to utilities, provide about as safe a dividend as it gets. 

Yieldcos like NextEnergy Partners not only own projects that generate cash for dividends, they grow their dividends by buying more projects with excess cash flow or by using stock and debt to fund acquisitions. A smart yieldco can effectively grow its dividend forever with this strategy. 

NextEra Energy Partners' current dividend yield is 4.1%. Management has said that it will grow the dividend 12% to 15% through 2021, at the very least. And it has the pipeline of projects to buy from its parent company NextEra Energy (NYSE: NEE), which has the incentive to use the yieldco to grow its own business. 

A lot of energy dividends have come under pressure recently, but yieldcos are still great buys for retirees, and NextEra Energy Partners should be at the top of your list. 

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A surprisingly reliable dividend in a volatile industry

Tyler Crowe (Helmerich & Payne): The oil and gas industry is already a cyclical market that can wax and wane. One component of that business -- owning and leasing land rigs -- is even more volatile and doesn't typically produce the stable, income-generating stocks investors want in retirement. Despite the challenges of the market, Helmerich & Payne has proven to be an incredibly consistent dividend stock that currently pays a 4.7% yield. 

The thing that sets Helmerich & Payne apart from its peers is the management team, plain and simple. The rig business isn't known for having economic moats. Companies don't have much pricing power, as their customers -- oil and gas producers -- hold all the cards. Also, it is a capital-intensive business that requires frequent turnover of assets and effective fleet management. It is also a rather fragmented market, with no one player controlling more than 20% of the market. Even in the face of all these challenges, Helmerich & Payne has been able to increase its dividend payment every year for 44 years straight. 

Of all the things that Helmerich & Payne does well, it can all be boiled down to the fact that its management team is a good steward of shareholder capital. It has managed to have the most advanced fleet of land drilling rigs in North America while keeping its spending levels within reason, and has consistently held more cash on hand than total debt outstanding. That financial prudence is a huge reason why the company has been able to maintain its dividend throughout this downturn in the oil and gas market. 

Management has admitted that if this downturn were to get worse for a prolonged period of time, it may need to revisit its current payout. However, this is a company that has gone through multiple boom-and-bust cycles in the oil market and has maintained its dividend throughout. Helmreich & Payne's management is the kind of team you want running a business that pays a dividend.

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Rich Duprey has no position in any of the stocks mentioned. Travis Hoium owns shares of NextEra Energy Partners. Tyler Crowe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.