Few generations of retirees have had such scarce opportunities to buy meaningful income-producing investments as today’s. For roughly 12 years, investors have been stuck in an era of sub-3% interest rates; for the vast majority of those years, rates have been closer to zero than 3%. The good news entering 2020 is that retirees can find income investments in the stock market. The downside? The risk those stocks will fall. A crucial part of retirement investing is minimizing uncertainty, so retirees ideally need to choose from a universe of safe dividend stocks. In light of that delicate balance, here’s a look at seven of the best low-risk dividend stocks to buy for retirees.
Johnson & Johnson
Johnson & Johnson (JNJ) is a drugmaker and consumer goods giant that’s been a mainstay of U.S. industry practically since its inception in 1887. The factors that insulate investors from many of the typical risks found in the stock market are litany: the company’s size ($345 billion), 56-year record of dividend growth, diversified recession-resistant businesses and, most impressively, its virtually immortal balance sheet. To that point, JNJ is one of just two U.S. companies around with AAA-rated debt from all three credit rating agencies. That means experts believe Johnson & Johnson has lower chances of defaulting on bond payments than the U.S. government, which has a AA+ rating. If that’s not a low-risk dividend stock to buy, what is? JNJ pays a 2.9% dividend.
By definition, the dividend aristocrats – a group of S&P 500 (.SPX) companies that have raised their dividend payouts annually for 25 years or more – should be good candidates for low-risk dividend stocks to buy. Like JNJ, Chevron (CVX) falls into that category, with 33 straight years of dividend growth. Today Chevron rewards investors with a healthy 3.9% yield, and while share price gains have been pretty pedestrian in recent years, the integrated oil and gas major does have to deal with energy prices that have been depressed since the 2014 oil crash. Chevron’s dominant presence in the Permian basin only grew last quarter, with production jumping 35% to 455,000 barrels of oil equivalent per day. It aims to double that number to 900,000 by 2023.
AT&T (T) stock has long been a monster dividend stock, and with a yield of 5.2%, shares are paying well over double what an income-focused retirement investor can earn on 10-year Treasurys, which only pay 1.8% at current levels. As a $280 billion telecom giant, AT&T also enjoys the good fortune of being in an oligopolistic market with extremely high barriers to entry – it’s not like some ambitious Silicon Valley startup is going to suddenly spend tens of billions on capex to build out a nationwide network or lay cable. The company also owns WarnerMedia, the parent company of HBO, TBS, TNT, CNN, Cinemax, DC Comics, and various other assets.
CVS Health Corp.
The best low-risk dividend stocks to buy for retirees should share a few core traits. First, they should be large, fairly predictable, difficult to topple businesses. It wouldn’t hurt if shares traded for a decent valuation, either. CVS (CVS) checks all those boxes, as it’s the largest pharmacy chain in the U.S. by both store count and prescription volume. CVS has over 9,900 U.S. locations, or an average of nearly 200 per state. The company’s $244 billion in revenue dwarfs that of rival Walgreens Boots Alliance (WBA) at $136 billion. And while shares are on a short-term run, up 41% from 52-week lows, the stock is still off 9% from a year ago, offering an attractive entry point for long-term investors. Shares go for 10 times forward earnings and yield 2.7%.
General Dynamics Corp.
Aerospace and defense company General Dynamics (GD) doesn’t offer the sky-high yields some of the other low-risk dividend stocks do, but its 2.2% yield is still meaningful. In addition to death and taxes, one of the few things people can take for granted is that U.S. military spending will continue year after year. That means dollar signs for GD stock, which is expected to see earnings per share end 2019 43% higher than they were as recently as 2016. General Dynamics is behind the Gulfstream aircraft fleet; it also makes armored tanks, Stryker combat vehicles, weapons systems and various other products for the military. Shares trade for just 16 times earnings. General Dynamics’ current backlog is over $67 billion.
The more cautious investor may want to bide their time before buying IBM (IBM), but there’s no denying that Big Blue is one of the best dividend stocks, yield-wise, of the mega-cap companies. IBM’s 4.8% dividend yield is the third-highest in the Dow Jones Industrial Average (.DJI). Though revenue has been steadily declining in recent years, the $34 billion July acquisition of software developer Red Hat should help combat that trend. Although sales declines began decelerating and ultimately, in 2018, became sales growth, analysts expect revenue to decline once again in 2019 before seesawing back into positive territory in 2020. While, at 12 times earnings, IBM shares are modestly priced, consider waiting for a blowout quarter from the tech stock before buying.
Last but not least among the top low-risk dividend stocks to buy is $200 billion drugmaker Pfizer (PFE), which is well positioned to benefit from the graying of America as life expectancy edges into the upper 70s. Pfizer recently agreed to merge its generics business, Upjohn, with Mylan (MYL), in a transaction that will tentatively give PFE investors 57% of the combined company. The new company will be named Viatris, and will have the rights to hit drugs like Viagra and Lipitor. PFE currently pays a robust 3.9% dividend; a payout ratio of 49% means it pays out less than half of earnings, indicating sustainability. A recent pullback indicates a potentially attractive entry point as Pfizer increasingly shifts focus to higher-margin businesses like oncology.
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