If your investment goal is to build a solid cash stream for retirement, then holding some quality dividend stocks in your portfolio is a great idea.
In the dividend-paying segment of the market, one strategy worth focusing on is buying what some traders may view as boring, old-economy businesses, like consumer staples, key infrastructure providers, and banks and insurance companies.
Owning these stocks makes economic sense as well, especially for fixed-income investors looking ahead to the long-term. These publicly traded players pay dividends through thick and thin—whether markets are bullish or bearish and the economy is flourishing or struggling.
That’s because their products and services are so crucial, consumers can’t imagine life without them. This key quality has turned these businesses into cash machines that never run out.
Here are our two top picks that offer great income potential for retirees:
1. Procter & Gamble
Consumer staple giant Procter & Gamble (NYSE:) nicely fits into any long-term retirement portfolio. P&G has a long history of rewarding its investors by steadily growing its payouts. The Cincinnati, Ohio-based company has increased its dividends for 61 consecutive years, a track record few companies can match.
Now, the global health crisis has positioned P&G to grow even more quickly, producing additional income for its shareholders. P&G raised its outlook last month after posting its best organic sales growth since 2005 amid a boom in at-home consumption of toilet paper and cleaning supplies.
The maker of Tide detergent and Dawn dish soap said organic sales growth rose 9% in the . Sales grew in each of P&G’s business units, led by the fabric and home-care segment, which has spiked as consumers do more dishes, laundry and cleaning while working from home.
With a pay-out ratio of 59%, the company has enough runway to continue growing its income stream for investors. Over the past decade, pay-outs have doubled to $0.79 per share quarterly. PG stock currently yields 2.27%. Shares closed on Monday at $138.76 after gaining about 12% this year.
2. Toronto Dominion Bank
Canadian banks are a good choice for retirees in North America. What makes them reliable income generators is Canada’s sound regulatory environment, less competition and their revenue diversification.
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.
In this group, we particularly like Toronto Dominion Bank (NYSE:), (TSX:), 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 U.S.
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 from its U.S. retail operations. The bank also has a 42% ownership stake in trading platform and broker TD Ameritrade (NASDAQ:), as well as a rapidly-expanding credit card portfolio.
After the global health crisis and the ensuing deep recession, TD’s revenue is again under pressure. But there is a strong possibility that the lender will emerge more robust from this downturn due to its superior asset quality and the balance-sheet strength.
Stakeholders in TD stock now earn $0.5925-a-share quarterly dividend, which translates into a 4.5% yield—an impressive rate of return when the is yielding less than 1%. TD stock, after gaining 13% during the past quarter, closed yesterday at $53.35.
Adding solid dividend stocks to your income portfolio could create a sustained income stream to rely on during retirement. You should slowly start building your income portfolio when stock prices are attractive and yields are high. By pursuing this strategy, you will continue to earn steadily growing payouts even when the economy is in bad shape.