3 Best Dividend Stocks for Retirement

 3 Best Dividend Stocks for Retirement

In retirement, dividend paying stocks can be more reliable and safer than growth stocks. That's because companies that regularly pay and increase their dividends usually have a proven track record of success, sound financial health, and a commitment to sharing their profits with shareholders. With these factors in mind, let's examine three dividend-paying stocks that can potentially provide attractive rewards. retired for years. 

Jacobs Solutions (NYSE: J ), a $17 billion engineering services company, pays a quarterly dividend of $0.26 per share, representing an annualized dividend yield of 0.8%. Since the company began paying dividends in early 2017, the stock has generated a total return (stock appreciation plus dividends) of 139%, beating the S&P 500 benchmark by about 13 percentage points. The payout ratio is a critical financial metric for dividend stocks. because it helps measure a company's ability to maintain and increase dividends over the long term. It is calculated by dividing annual dividend payments by annual profit. A payout ratio above 75% signals weak or unstable earnings, which exposes the dividend to risks, especially during unforeseen challenges.

 With a payout ratio of 16%, Jacobs is well-equipped to maintain and increase its dividend each year, a trend it has successfully pursued since 2019. Rising interest rates could cause some concern for the stock as investors could misjudge believe that there are less technical solutions. needed if there is less demand for construction. That's unlikely to be confirmed for Jacobs, as it's one of the companies that should continue to benefit from the recently passed Infrastructure Investment and Jobs Act, the Lower Inflation Act and the CHIPS Act, with an estimated $2 trillion in new federal spending for the full year . the next decade.

For the fiscal third quarter, Jacobs generated record revenue of $4.2 billion, representing a 7.5% year-over-year increase. But perhaps even more impressively, management says it has $28.9 billion in backlog at "near record levels," demonstrating the company's many projects lined up for future growth.Management needs to hit its fiscal full-year adjusted earnings per share (EPS) estimate of $7.25 to $7.45, after missing analysts' expectations by $0.02 for the most recent quarter. Still, if the company continues to benefit from government spending at a similar rate, the stock should soon hit new highs.

Lowe's Companies (NYSE: LOW ), the leading home improvement retailer in the United States, has increased its dividend annually for 49 consecutive years. Its quarterly dividend of $1.10 per share represents an annual yield of 1.9% with a payout ratio of 39%. And while management expects steady revenue growth in 2023 compared to 2022, the stock has rallied this year with a total return of 14% year-to-date.In addition to steady dividend growth, the company has been recognized for increasing shareholder value through share buybacks. Over the past five years, management has effectively reduced shares outstanding from 825 million to 596 million, a reduction of 28%.

In his latest annual letter to shareholders, Warren Buffett explained how stock buybacks benefit all owners: “The math is simple: When the number of shares goes down, your interest in many of our businesses goes up. Every little bit helps when buybacks are made. at value-enhancing prices." As a possible consequence of Lowe's strategy to aggressively return capital to its shareholders, the company's debt has risen significantly.

 Over the past five years, net debt (total debt minus cash and cash equivalents) has skyrocketed 141% from $13.9 billion to 33, $6 billion By comparison, rival Home Depot, which has a market capitalization more than twice that of Lowe's, saw net debt rise 71% from $24 billion to $41 billion over the past five reported years.

Still, Lowe's stock appears undervalued compared to its historical price-to-earnings (P/E) ratio, which has averaged 23.1 over the past five years. The stock is currently trading at a forward P/E of 16.7, indicating a potential bargain opportunity.

Most investors are likely customers of Mastercard (NYSE: MA ), given that the company has issued 3.2 billion cards under its own name and its Maestro brand. The payments processing and financial services company has raised its dividend for 11 consecutive years, with a current quarterly payout of $0.57 per share.

While the resulting dividend yield of 0.57% may seem low, the quarterly dividend was only $0.25 per share in 2018, meaning it has more than doubled in five years. With Mastercard's low payout ratio of 20%, investors should expect management to raise the dividend annually for the foreseeable future.

And Mastercard is similar to Lowe's in share buybacks, buying back 9% of its outstanding shares over the past five years. The company currently has $6.4 billion left in its share buyback program after already spending $5.8 billion on buybacks in 2023.

The company generated $6.3 billion in revenue and $2.8 billion in net income in its most recent quarter, representing year-over-year growth of 14% and 25%, respectively. By comparison, its biggest competitor Visa increased its revenue by 12% and net profit by 22% in the last quarter.

As for what could go wrong, both companies face the possibility of increased regulation following a recent $5.6 billion antitrust settlement in which more than 12 million retailers accused the payment giants of improperly setting credit and debit card fees.Mastercard is at the forefront of the global cashless revolution and one of the established leaders in payments. Investors can expect the stock to continue to flourish for years to come.

Are these dividend stocks right for you?

Although this group of stocks includes three very different companies operating in different parts of the economy, they are similar in that their management teams are dedicated to returning capital to shareholders. These businesses offer some of the most shareholder-friendly investment opportunities between share buybacks and ever-growing dividends, making them ideal candidates for your retirement portfolio.

When our team of analysts has a stock tip, it can pay to listen. After all, the newsletter they've been running for over a decade, the Motley Fool Stock Advisor, has tripled the market.*They just revealed what they believe are the ten best stocks for investors to buy right now... and Jacobs Solutions wasn't one of them! That's right - he thinks these 10 stocks are an even better buy. 

Collin Brantmeyer has positions in Lowe's, Mastercard, SPDR S&P 500 ETF Trust and Visa. The Motley Fool has positions and recommends Mastercard and Visa. The Motley Fool recommends Lowe's Companies and recommends the following: long January $370 calls on Mastercard and short January $380 on Mastercard. The Motley Fool has a disclosure policy.