Which stocks make an ideal investment for your golden years?
If you are a buy-and-hold investor, large-cap dividend stocks are the best choice. These companies tend to have strong business models that allow them to regularly generate cashflows for their shareholders.
In addition to receiving income when you need it the most, large-cap income-producing stocks are also less volatile during economic downturns, like the one we faced during the pandemic.
Their strong balance sheets, essential products and services, and large global footprint help provide investors with considerable annualized returns. Below, we've identified three such stocks:
1. Home Depot
It’s not hard to see the value of the home-improvement giant Home Depot (NYSE:HD) in any retirement portfolio. It’s the kind of stock that is ideal to provide regular cash flows, combined with a strong upside potential.
In addition, the current work-from-home environment and low interest rates has further strengthened the bullish case for HD and its potential for generating steadily increasing dividend income.
The Atlanta-based retailer, which benefited from pandemic-related changes in consumer behavior and federal stimulus payments last year, said in August that demand for its products has remained strong. In the latest quarter, comparable sales—a measure that adjusts for stores opening and closing—grew 4.5%, after four consecutive quarters of more than 20% growth.
The company is also a reliable dividend payer. Over the past five years, its quarterly dividend, on average, has expanded 22% per year. With an annual dividend yield of 2%, the company pays a $1.65-a-share quarterly payout. And, with a solid payout ratio of 44%, it has much more room to grow. The stock, which closed yesterday at $331.77, has gained 20% this year.
2. American Water Works
Utilities that provide power, gas, water and telecom services to consumers are low-risk investments, making them attractive for long-term buy-and-hold investors. In general, these companies regularly increase payouts. In many cases, they've been boosting their dividends for decades.
Holding these shares over the long term is a great way to ensure a steady income flow with above-average yields, even when other areas of the market go through sharp adjustments. In this domain, you can consider shares of American Water Works (NYSE:AWK), a New Jersey-based utility that provides drinking water in multiple states. The utility provides regulated and market-based drinking water, wastewater and other related services to 15 million people in 46 states.
This massive footprint helped American Water generate consistent returns that outperformed other utilities. Over the past five years, the utility generated 126% total return for its investors. With an annual dividend yield of 1.28%, the utility pays $0.6 a share quarterly dividend. That payout has increased at an average annual rate of 10% over the past five years.
AWK shares closed Thursday at $187.54, after gaining more than 20% this year.
3. Coca-Cola
The Atlanta-based food and beverage giant Coca-Cola (NYSE:KO) is another suitable candidate to buy and hold. The company has been issuing dividend checks for more than a century, showing the strength of its brands and its ability to survive in the toughest of economic times.
Just like many consumer brands, Coca Cola is also taking a hit on its sales due to the COVID-19 pandemic, as sales in amusement parks and theaters dried up after lockdowns. But the company’s balance sheet remains strong, and its management is confident in its liquidity position.
At a time when health-conscious consumers are shifting away from sugary drinks, the company is expanding its healthy offerings. As part of its push to grow beyond its namesake brand and become a “total beverage company,” Coke is acquiring startup beverage companies to resonate better with health-conscious clients and find new areas of growth. Its recent investments include Honest Tea, Fairlife dairy and Suja Life.
Trading at $55.86 at yesterday's close, Coke’s stock is yielding 3.02% annually. That return might not look too exciting, but the company has a long track record of hiking its payout—for 57 consecutive years now. With a 7% annual dividend growth during the past 10 years, KO currently pays a quarterly payout of $0.42 a share.