After saving for most of your life, retirement is the time to make your investments and money work for you with income-generating assets. If you are in retirement, it’s important to have multiple income streams, such as Social Security and savings and investments you built up on your own. For the lucky, there are pensions, but those are fast disappearing. Investing in stocks that pay a dividend is another way to generate income while you’re in retirement.
A dividend is simply a cash payout a company agrees to distribute to its shareholders. Generally, dividends are paid on a quarterly basis, but there are also companies that pay once or twice a year.
While previous generations of retirees could sock their money away in bank certificates of deposits and use the interest as an income stream, today’s low interest rates are forcing retirees to look elsewhere for yield. “In the early 2000s, at the height of the tech boom, dividend-paying stocks were old-school and very out of fashion. Given the Federal Reserve’s long-lived, zero-interest-rate policy, the steady-Eddie dividend-paying stocks have soared,” says Kim Caughey Forrest, vice president and senior equity analyst at Fort Pitt Capital Group, a Pittsburgh-based investment management firm.
Dividend stocks offer investors an attractive alternative to traditional fixed-income investments. “We are at the lowest yields in a generation,” explains Mariann Montagne, senior investment analyst at Gradient Investments, based in Arden Hills, Minnesota. She points to bank savings deposit rates as low as 0.06 percent, two-year CDs yielding just 0.80 percent and 10-year U.S. Treasury bonds yielding 2.31 percent annually.
“With a $500,000 retirement account, one can only generate $4,000 per year from a two-year CD — woefully inadequate to meet annual income needs,” Montagne says.
Dividend-paying stocks have the potential to generate income in two ways: first, through the regular dividend payment, and second, through potential appreciation of the stock price itself. Investors can expect to receive an annual dividend ranging from 2.5 percent to 3 percent of the stock’s value for “good” dividend stocks, says Bob Phillips, managing principal at Indianapolis-based Spectrum Management Group.
For investors considering adding dividend-paying stocks to their portfolio, here are five that experts like now.
Emerson Electric Co. (symbol: EMR) is a global manufacturing and technology company headquartered in St. Louis. Its current dividend is 3.05 percent, and the company has consistently increased dividend payments for over 35 years, Phillips notes. “Management is clearly focused on generating shareholder value and has been buying back stock as they increase the dividend. In the near term, Emerson faces challenges from the slumping price of oil, as customers cut capital expenditures, and from a slowdown in industrial spending. But for building long-term cash flow, they should be considered,” Philips says. The stocks’s 52-week range is $54.95 to $68.80, and it recently traded at $59.63 per share.
Johnson & Johnson (JNJ) is a consumer health care products company with medical devices and prescription products divisions, headquartered in New Brunswick, New Jersey. The current dividend is 3 percent. This company has also consistently increased its dividend payment for over 35 years, Phillips says. “We view JNJ as uniquely situated with unmatched depth and breadth in growing global health care markets, and with solid positions in drugs, medical devices and consumer products. It is one of the few companies in the market that also has a AAA credit rating,” Phillips says. The stock’s 52-week range is $95.10 to $109.49, and it recently traded at $98.35 per share.
Cracker Barrel Old Country Store Inc. (CBRL) operates 634 company-owned restaurant and gift shop locations in 42 states and is headquartered in Lebanon, Tennessee. The restaurant segment has posted strong performances in the first quarter of 2015 and is expected to continue to improve throughout the second quarter, Montagne says. She points to low gas prices, an improving economy and an improving job market as factors that support Cracker Barrel sales. “Management recently reported strong results, an improving outlook, declared a special dividend and raised the quarterly dividend by 10 percent to yield 3 percent at the current price of $147 per share,” Montagne adds. The stock’s 52-week range is $96.01 to $159.94.
Arthur J. Gallagher & Co. (AJG) provides insurance brokerage and risk management services in the U.S. and internationally and is headquartered in Itasca, Illinois. It operates through three segments: brokerage, risk management and corporate. The company’s first-quarter earnings outperformed consensus estimates, and growth was attributed to better results in both its risk management and brokerage segments, along with 11 new acquisitions, Montagne notes. The stock yields 3.1 percent and recently traded at $48.51 per share. The 52-week range is $43.36 to $49.59.
AT&T (T) is a telecommunications service provider in the U.S. and internationally, and is headquartered in Dallas. The current dividend is 5.4 percent. “AT&T is not your father’s telecom stocks. While it benefits from the high-margin, plain-old-telephone business that generates a lot of cash, this company is responsible for bringing large parts of America their mobile and home Internet connections,” Caughey Forrest says. The 52-week range the stock is $32.07 to $37.48, and it recently traded at $34.65 per share.
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5 Dividend-Paying Stocks for Retirees originally appeared on usnews.com
