Earning income from assets has become a growing challenge for retirees. Ultra-low interest rates make many options they might have turned to in the past unworkable today.
However, dividend growth stocks could provide the answer. Although dividend payments are generally optional, confidence in a stock can be based on a rising dividend, greatly reducing the likelihood of reduced payments.
Plus, not only do some dividends match Fidelity’s recommended 4% to 5% withdrawal rate, but they also offer the payout growth investors need without reducing principal. Magellan intermediary partners (MMP 0.93% ), Real estate income (O 2.67% ), and Verizon Communications (VZ 1.49% ) are three of those actions that could finance a sustainable retirement.
Magellan in the middle of the stream
With the intense focus on alternative energy, one might overlook a fossil fuel company like Magellan Midstream. Magellan transports, stores and distributes crude oil and refined petroleum products. The company owns approximately 12,000 miles of pipelines used for these activities.
Oil has become an increasingly unpopular source of energy, and management said the company and the inventory suffered temporarily as the pandemic caused a significant decrease in the volumes of crude oil and refined products. transported in its pipelines. The Magellan Midstream has not fully recovered and has lost 25% of its value since early 2020.
However, the United States still gets 35% of the energy it uses from oil, according to the US Energy Information Administration. Crude oil is therefore unlikely to disappear anytime soon as an energy source.
In addition, its annual dividend of $ 4.15 per share brings a cash return of approximately 8.8%. It may look like a payment vulnerable to a cutoff. Nonetheless, the company increased its payout by $ 0.04 per share in the third quarter.
Indeed, a 1% increase over two years may not impress. Still, his annual payout has continued to increase every year since he started trading in 2001. Plus, just over $ 1 billion in free cash flow in the first nine months of 2021 has covered the $ 685 million cost of its distributions, keeping its payout lasting.
Magellan Midstream shares could continue to underperform. But oil as an energy source will likely persist for decades, and at current payment levels, Magellan should continue to pay retirees well.
Real estate income
Realty Income is a real estate investment trust (REIT) specializing in single tenant freestanding commercial properties. Such an investment may seem counterintuitive given the shift from in-store retail to e-commerce.
Nevertheless, the company continues to recover from the pandemic which temporarily affected a large percentage of its tenants. Today, it is on track to invest more than $ 5 billion in new real estate acquisitions in 2021 in its three markets, the United States, United Kingdom and Spain. Although it displays an occupancy rate of 99%, its FFO per share for the first nine months of 2021 was $ 2.41, down slightly from the $ 2.43 per share reported during the first three quarters of 2019.
However, retirees who buy these stocks will earn just over $ 2.95 per share per year, paid monthly. This provides a cash return of around 4.2% at the time of writing. Plus, it has grown every year since 1996, making the company a dividend aristocrat.
Additionally, it earned $ 1 billion in adjusted operating funds in the first nine months of 2021. It paid out $ 798 million in distributions to shareholders during that period, making its dividend affordable for the company, which must distribute at least 90% of its net profit. maintain REIT status.
Realty Income stock remains in recovery mode, selling for around 5% less than its January 2020 price. Yet at a price / operating cash ratio of around 20, it may seem more reasonable. Additionally, with its high level of rising monthly income, Realty Income should have little difficulty in providing adequate and increasing payout levels to retirees.
Verizon occupies a strong position in the US 5G market. Since AT&T and T Mobile are its only direct competitors of 5G, it enjoys an oligopoly in this crucial service. Plus, with decades of experience in securing quality awards from JD Power, it seems to have an edge over its peers.
And 5G gives Verizon a way to take advantage of a new line of business, Network as a Service (NaaS). This subscription-based data service allows it to connect devices using artificial intelligence and the Internet of Things in ways that are not possible in the 4G world. The company also paved the way for its promotion, with HondaArizona State University’s autonomous vehicles and immersive learning among technologies powered by NaaS.
Retirees will appreciate that Verizon has increased its payouts every year since 2007. At $ 2.56 per share per year, new investors earn about 4.9% return, arguably making it one of the better dividend-paying stocks for retirement. Additionally, the company generated more than $ 17 billion in free cash flow in the first nine months of 2021. This helped cover the dividend cost of $ 8 billion over that period. The payment also does not affect nearly $ 14 billion in critical capital expenditures for network maintenance and upgrades.
Investors might find this year’s 2% payout hike disappointing, and might be hesitant to buy a stock that has fallen 14% in the past year. However, the company’s P / E ratio of less than 10 makes this stock cheap. As more investors enjoy NaaS activity, Verizon shares and its dividend payouts could rise significantly over time.
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