When most people reach the age of 50, they start thinking about retirement. At this age, you need a strategy in place about housing, working and income before retiring. For instance, should you pay off the mortgage, or sell your house and downsize to a smaller home? Similarly, income during retirement is a vital consideration, because Social Security will probably not cover all your needs. Even $1 million may not be enough in a retirement account, assuming you follow the 4% withdrawal rule. If you are used to living on more income, then it may be time to look at dividend stocks for income. Below we discuss five income stocks for retirees.
To obtain our list, we screen for stocks increasing their dividend for at least 10 years combined with a 4%-plus dividend yield. At this level, dividends are important because they become a major component of total return. In addition, we add criteria for dividend safety and require an earnings payout ratio of less than 65%. We don’t want to overpay for income, so we also need a price-to-earnings (P/E) ratio under 15X.
Walgreens Boots Alliance
Fidelity National Financial
Income Stocks: Western Union (WU)
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Western Union (NYSE:WU) is the first income stock for retirees. The company was founded in 1851 as a telegraph company but added services with time. Today, the corporation is the world’s largest money movement and payment services business. Western Union operates globally with more than 550,000 retail agents and a digital business. Total revenue was about $4.865 million in the past 12 months.
The company’s yield is outstanding at approximately 6%. Few companies, besides real estate investment trusts (REITs) and master limited partnerships (MLPs), offer a dividend yield this high. Moreover, the dividend is well covered, with a payout ratio of roughly 42%.
One risk is that competition is increasing for money transfer services. Thus, the stock price has been down about 29% in the past year. However, Western Union is undervalued, trading at an earnings multiple of 8.7X, below the 10-year range and near the lower end of the five-year range. Therefore, investors should look strongly at this stock when combined with dividend safety.
Verizon Communications (VZ)
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Verizon Communications (NYSE:VZ) is the second income stock for retirees. The company is a well-known telecommunications giant focused on cellular and broadband services for consumers and businesses. The company has roughly 115 retail cellular customers; 7.3 million broadband connections, of which about 6.6 million are FiOS; and 28 million business connections. Total revenue was around $134.325 million in the last 12 months.
Verizon is paying a roughly 5.8% dividend yield, the highest in a decade. Verizon only slowly raises the dividend at about a 2% compound annual growth rate (CAGR), but the dividend safety is strong, with a payout ratio of approximately 51%.
The stock is ridiculously cheap because of recession fears, competition and worries about subscriber growth. Verizon is trading at a P/E ratio of about 8.4X, well below the five-year and 10-year ranges. I view Verizon as a convincing addition to income portfolios.
Income Stocks: M.D.C. Holdings (MDC)
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M.D.C. Holdings (NYSE:MDC) is a homebuilding and financial services company founded in 1972. The company builds new homes under its Richmond American brand, mainly in Colorado, California, Arizona, Nevada and Florida. In addition, the company has smaller operations in other states. Total revenue was $5.523 million in the past 12 months.
The homebuilder’s stock is now yielding 5.8%, the highest since the COVID-19 pandemic bear market. Furthermore, the dividend is snowballing at an approximately 17% compound rate in the trailing five years. Finally, the dividend is supported by a conservative payout ratio of only around 21%, lowering the possibility of a cut or omission.
M.D.C. Holdings’ stock price has been battered in 2022 and is down nearly 38%. Investors fear rising mortgage rates and a recession will cause contraction in the housing market, impacting revenue and profitability. That said, mortgage rates are off their peak, and the unemployment rate is near a record low. Moreover, at a forward P/E ratio of roughly 3.4X, the stock is inexpensive and trading well below its five-year and 10-year P/E ranges, making it worthwhile.
Walgreens Boots Alliance (WBA)
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The fourth income stock for retirees is Walgreens Boots Alliance (NASDAQ:WBA). The company is one of two large pharmacy retail chains in the U.S. Walgreens also has international operations. The total store count is more than 9,000 in the U.S. and 4,000 internationally. Walgreens also owns an e-commerce site. Total revenue was $134.516 million in the last 12 months.
Walgreens Boots has a dividend yield of about 5.2%, the highest since the market decline during the worst months of the COVID-19 pandemic. Despite the high yield, the earnings payout ratio is modest at approximately 36%, making the dividend relatively safe. It has also allowed Walgreens Boots to increase the dividend at a 5.1% compound rate in the past five years. Furthermore, the company is a Dividend Aristocrat with 47 years of increases.
The pharmacy retailer is undervalued, too, trading at a low valuation of 7.8X earnings. In addition, the company is facing more competition and an overhang from opioid lawsuits resulting in a 30% decline in the stock price. That said, Walgreens Boots is cheap, and trading below is five-year and 10-year valuation ranges.
Income Stocks: Fidelity National Financial (FNF)
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Fidelity National Financial (NYSE:FNF) is the final income stock for retirees. The firm was founded in 1847 and sells insurance products, including title, escrow, trust, home warranty, life and annuities. Total revenue was $14.495 million over the trailing 12 months.
Fidelity National is paying a dividend yield of 4.4%, a little lower than the other stocks on this list. The value is again the highest since the pandemic bear market. However, the dividend has a payout ratio of about 20%, providing some confidence in its safety and leaving room for future growth. The company has grown the dividend at a roughly 12% compound rate in the past five years and decade.
The valuation is low, too, at a P/E ratio of about 6.8X, below the market average and less than the five-year and 10-year averages. The stock price is down about 23% year-to-date because investors fear a housing downturn and a recession will trigger lower demand for insurance products. However, the low valuation, high dividend yield and dividend safety make Fidelity National a worthy stock to consider.
On the date of publication, Prakash Kolli held a long position in VZ. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. The author is not a licensed or registered investment adviser or broker/dealer. He is not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.
Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor and blogger on dividend growth stocks and financial independence. Some of his writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial blogs. He also works as a part-time freelance equity analyst with a leading newsletter on dividend stocks. He was recently in the top 1.0% and 100 (73 out of over 13,450) of financial bloggers as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.
Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor and blogger on dividend growth stocks and financial independence. Some of his writings can be found on Seeking Alpha, InvestorPlace, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, FXMag, and leading financial blogs. He also works as a part-time freelance equity analyst with a leading newsletter on dividend stocks. He was recently in the top 1.0% and 100 (81 out of over 9,459) of financial bloggers as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.