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3 Dividend Stocks That Are Perfect for Retirement

Leo Sun, Reuben Gregg Brewer, and Steve Symington, The Motley Fool

Retirees might be reluctant to buy stocks as trade tensions hammer the markets, but shunning stocks altogether leaves nest eggs vulnerable to inflation. Today, these three Motley Fool contributors will highlight three conservative stocks that they think are ideal for retirees: Walmart (NYSE: WMT), W.P. Carey (NYSE: WPC), and Carter's (NYSE: CRI).

An evolving retail juggernaut

Leo Sun (Walmart): Walmart once seemed destined to lose the retail market to Amazon.com (NASDAQ: AMZN). But under the direction of CEO Doug McMillon, who took the top job in 2014, Walmart pulled off a remarkable turnaround by renovating its stores, expanding its e-commerce ecosystem through acquisitions, and matching Amazon's prices and delivery options.

A modern-looking Walmart tractor-trailer making a turn on a desolate highway..

Image source: Walmart.

Walmart also turned its massive network of brick-and-mortar stores into pickup points and fulfillment centers for online orders. Those efforts have paid off, with the company's U.S. e-commerce revenue rising 40% in 2018 while comparable sales stayed consistently positive.

Wall Street expects Walmart's revenue to climb 3% this year, although its earnings could dip 3% on higher spending and tariffs. However, analysts also expect its earnings to rebound next year as it reins in its spending and reaps the gains from big e-commerce investments like Flipkart, the Indian e-commerce giant it acquired last August.

Walmart currently pays a forward dividend yield of 2.1%, and it's hiked that payout annually for 44 straight years -- making it an ideal income generator for retirees. It also regularly repurchases its shares (spending $2.1 billion on buybacks in the first quarter alone), which tightens up its valuations over the long term.

Though Walmart might not seem particularly cheap at 20 times forward earnings, it deserves to trade at a slight premium because it's evolving into a stronger company with more irons in the fire -- including overseas partnerships, a growing army of smaller e-tailers, and innovative new shopping experiences.

Radically diversified income

Reuben Gregg Brewer (W.P. Carey): Diversification is one of those things that investment professionals talk about a lot, but that can get pushed aside in practice. That's not the case at real estate investment trust (REIT) W.P. Carey. While many of its peers have chosen to specialize and focus on just one property niche, Carey has achieved long-term success by going in the opposite direction.

To put some numbers on that, Carey's portfolio is spread across the office (roughly 26% of rents), industrial (23%), warehouse (21%), retail (18%), and "other" (the remainder) segments. Furthermore, foreign markets account for roughly 36% of the REIT's rent roll, the majority of which is from Europe. That combination of property and country diversification is pretty much unheard of in the REIT space. 

WPC Dividend Yield (TTM) Chart

WPC dividend yield (TTM). Data by YCharts.

As for the company's success, well, it has managed to increase the annual dividend each and every year for 22 years running. It's hard to argue with that, especially if you are a retiree looking to add a consistent dividend stream to your portfolio. In addition to that record, Carey's 5.2% yield is notably higher than most of its closest competitors. 

If you're wondering about the safety of the dividend, the payout ratio should be roughly 80% in 2019 if Carey hits its funds from operations targets for the year. That's a very reasonable figure and one that suggests more dividend increases are in store in the future. All in, there's a lot to like here for a retiree, especially if you are looking for a diversified dividend investment to help round out your income portfolio.

Invest in this youthful brand

Steve Symington (Carter's): Unless you have grandchildren, your days of dressing kids are probably long gone. But children's clothing is obviously still an enormous market opportunity, and no company is better positioned to capitalize on it than Carter's. Carter's owns not only its namesake brand and stores, but also OshKosh B'gosh, Skip Hop (a family-oriented lifestyle brand), and a number of other smaller brands sold at the country's leading retail chains.

Carter's most recently followed an impressive 2018 holiday season with a strong start to 2019 despite enduring lost sales related to the bankruptcies of two large customers -- namely Toys R Us and Bon-Ton -- last year. On the latter, Carter's revenue fell a modest 1.9% year over year in the first quarter, while adjusted earnings slumped 20% to $0.87 per share. But both metrics easily outpaced Carter's own targets, which called for adjusted earnings of $0.65 to $0.70 per share on a 4% to 5% sales decline, given tough comparisons to the same year-ago periods. And Carter's management reiterated its outlook to return to modest growth for the full year.

Couple that progress with a healthy dividend yielding 2.3% annually at today's prices, and I think Carter's stock is a perfect portfolio candidate for retired investors.

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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. Leo Sun owns shares of Amazon. Reuben Gregg Brewer owns shares of W. P. Carey. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Carter's. The Motley Fool has a disclosure policy.