Stock AnalysisTop News

3 Safe Dividend Stocks To Boost Fixed Income As Risk And Low Rates Linger

In this extremely low interest rate environment, it’s becoming harder for retirees to make a decent return on their investments. As the flight to safety permeats during the COVID-19 pandemic, some of the most secure, interest-generating assets–such as bonds and savings accounts–are paying close to nothing.

The reality in this perpetually low rate environment: retirees or other investors looking for reliable fixed income need to have a good chunk of their portfolio tied to equities in order to earn higher total returns.

Conservative investors who don’t want to add too much risk to their portfolios will need to identify good quality stocks that have the ability to recover from downturns and still continue to provide regular income.

In the dividend-paying segment of the market, sometimes it makes sense to focus on what some traders may view as boring, old-economy businesses, such as telecoms, key infrastructure providers, and banks–companies that, through market up and downs, are steadfast about their payouts.

Below, we’ve put together a list of three stocks that meet the above criteria:

1. AT&T

America’s largest telecom operator, AT&T (NYSE:T) might have little to offer if you’re seeking hefty capital gains. But it’s one of those low-risk, income producing equities which fit nicely into any retirement portfolio.

T Weekly TTM

T Weekly TTM

Indeed, the stock is one of the top 20 most widely-held US companies among institutional investors, mainly because the Dallas-based company has paid a growing stream of income for 35 consecutive years. This fact makes AT&T an ideal source for increasing retirement income, especially, at $30.46 per share as of Wednesday’s close, with its yield now touching a hefty 7%.

Going forward, AT&T is in the process of further consolidating its market position under its recent agreement with an activist investor, Elliott Management.

As part of its three year financial plan, the telecom plans to continue hiking its dividend and pay off debt, aiming to reach a leverage ratio between 2 and 2.25 in 2022. AT&T is also working on asset sales. The company agreed last year to sell its operations in Puerto Rico and the US Virgin Islands to Liberty Latin America Ltd. for $1.95 billion in cash.

To support its share price, AT&T spent $2 billion in Q4 to buy back 51 million of its own shares and allocated another $4 billion to repurchase shares starting in January. Executives have said the company will continue to boost its share price by reducing the amount of common stock available to the public.

2. NextEra Energy

We like utilities for retirees for one simple reason: these companies invest billions of dollars to build assets which generate solid income for investors. As long as customers continue to pay their utility bills, the cash will keep rolling in.

In this space, we particularly like NextEra Energy (NYSE:NEE), the Florida-based utility that has scaled up by providing clean energy, which will be hard for competitors to match.

NEE Weekly TTM

NEE Weekly TTM

NextEra is the largest US provider of renewable energy, generating electricity from the wind and sun. It also operates a large natural gas pipeline business as well as a growing energy storage operation.

The big difference between NextEra and other traditional utility companies is that its growth wasn’t funded by a massive injection of debt. Instead, the company very smartly used the government subsidies and tax breaks offered to clean power producers. It mostly sells the output to utilities, many of which must procure power from green sources to meet state mandates.

NextEra is expanding beyond its traditional utility customers, building wind farms and solar parks directly for large corporations, which want to run facilities with green energy for financial and public-relations purposes. Among its customers on this front is Google parent Alphabet.

This mix of businesses, clean energy and energy storage, has rewarded investors handsomely. Shares closed yesterday at $253.27, following a 145% jump in the past five years. With a dividend yield of 2.27%, NextEra pays a quarterly dividend of $1.4 a share after a 12% payout hike in April.

3.Toronto Dominion Bank

Canadian banks are among the safest dividend-paying stocks in North America. What makes them different from peers south of the border is less competition, a sound regulatory environment, and their diversification.

They operate in a kind of oligopoly where competition is limited. Canada’s top lenders have been very consistent in rewarding investors through steadily growing dividends, on which they spend about 40%-50% of their income.

TD Weekly TTM

TD Weekly TTM

In this group, we particularly like Toronto Dominion Bank (NYSE:TD), Canada’s second-largest lender. It has a very attractive dividend policy, supported by strong growth momentum, and a significant retail-banking operation in the US Indeed, TD has more retail branches in the U.S. than in Canada, with a network that stretches from Maine to Florida.

Overall, TD generates about 30% of its net income from its US retail operations. The bank also has a 42% ownership stake in brokerage and financial services firm TD Ameritrade (NASDAQ:AMTD), along with a fast-expanding credit card portfolio.

After the COVID-19 sell-off, the stock, which closed yesterday at $44.63, yields an attractive 5.19%. It provides a quarterly payout of $1.2975 a share.

Bottom Line

Adding solid dividend stocks to your portfolio is a proven way to earn a higher return and create a sustained income stream, something that becomes even more crucial during retirement.

The market correction triggered by the COVID-19 pandemic has made many dividend stocks more attractive compared to last year, giving fixed income investors a chance to boost their passive returns.

Related Articles

Back to top button

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.

Your information is secure and your privacy is protected. By opting in you agree to receive emails from us and our affiliates. Remember that you can opt-out any time, we hate spam too!