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3 Dividend Stocks That Are Perfect for Retirement

As you're putting presents in boxes this holiday season, don't forget to put some stocks in your retirement account! Top dividend stocks tend to outperform their non-dividend-paying brethren over the long term, so investing in them is like giving a gift to your future self.

Be careful, though: Some high yielders -- especially master limited partnerships (MLPs) -- don't play well with retirement accounts. Still others may not be attractive investments over the long term. Three solid choices for your retirement portfolio right now are BP (NYSE: BP), Kinder Morgan (NYSE: KMI), and Williams Companies (NYSE: WMB).

Here's why these picks are good "gifts that keep on giving."

The best dividend stocks for retirement offer a generous payout and long-term stability. Image source: Getty Images.

Investing in the future

When you look down the road to retirement, you might justifiably wonder if investments in oil and gas are going to fizzle out before you get there. With renewable energy growing in market share and falling in price, oil and gas seems more like a blast from the past than a fuel of the future.

Big oil companies like BP are acutely aware of this perception, which is one reason they're taking steps to ensure they can still outperform in a low-carbon future. BP in particular has been focused on reducing its carbon footprint and making strategic investments in renewable energy. In fact, in August, BP CEO Bob Dudley took the unprecedented step of talking more about the company's green energy investments than about its oil and gas business in his prepared remarks on the company's Q2 earnings call.

That's not to say that oil and gas are going to disappear anytime soon, though. With a growing global population increasingly turning to natural gas for heating, BP's renewable and fossil fuel future looks bright. And its best-in-class dividend yield of 6.6% should ensure that your investment in the oil major keeps paying off for years to come.

Big player in a growing industry

Speaking of the growing appeal of natural gas, you may not have heard that the U.S. became the world's largest gas producer in 2011. In 2015, natural gas became the leading source of power generation in the U.S. Just two years later, in 2017, the U.S. became a net exporter of natural gas for the first time since 1957.

The natural gas boom has had mixed blessings for the U.S. energy industry. On the one hand, the huge growth in production has caused natural gas prices to plummet, which has weighed on the earnings of gas drillers. On the other hand, with more gas crisscrossing the nation, gas pipeline operators are finding themselves in a sweet spot as they race to meet demand. Even better, they can usually be counted on to generate reliable cash flow from their fee-based pipeline and terminal networks.

Possibly no company has benefited more from this situation than the country's largest natural gas pipeline operator, Kinder Morgan. Just four years ago, during the oil and gas price downturn of 2014-2017, Kinder Morgan's stock took a big hit when it cut its dividend to shore up its debt-ridden balance sheet. Since then, however, the company has made progress paying down debt, and has increased its dividend, which now yields 4.9%. Better yet, the company has excellent growth prospects thanks to its major Permian Basin pipeline projects, including the Gulf Coast Express pipeline, which began operations in September, and the Permian Highway Pipeline, set to enter service in 2021.

Gas prices may rise and fall, but as long as it's being produced, it will need to be transported. That should keep Kinder Morgan churning out its dividend over the long term.

Solid coverage

Another natural gas pipeline company that looks like a good bet heading into 2020 is Williams Companies, which currently sports a dividend yield of 6.7%. Like Kinder Morgan, the company had to slash its dividend during the energy price downturn in response to high debt levels, and like Kinder, its stock took a hit in response.

However, Williams has made even more progress than Kinder in paying down its debt load, cutting long-term debt by 67.6% over the last three years. It also acquired its subsidiary MLP Williams Partners to simplify its operational structure.

Williams sees low natural gas prices as potentially having a negative impact on its earnings growth in 2020, particularly in its gathering and processing segment. Still, it doesn't expect dividend growth to suffer. The company currently has an impressive coverage ratio of 1.7 (over 1.2 is considered excellent), so it has room to continue its dividend growth even as it waits for gas prices to recover.

Williams' dividend looks like a safe bet for a retirement portfolio.

Built to last

Of course, you shouldn't plan to buy energy stocks for your retirement portfolio and never check on them again. Circumstances change, and there's no guarantee that even solid dividend stocks like BP, Kinder Morgan, and Williams Companies won't experience unforeseen hiccups in the future. Remember, all three have cut their payouts in the past in response to unexpected situations.

However, with natural gas almost certain to be a part of the energy landscape for decades to come, you should feel safe with these high yielders in your retirement portfolio.

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John Bromels owns shares of BP and Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool has a disclosure policy.


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