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3 Best Dividend Stocks for Retirement

For many investors, dividends can be a reliable source of income in retirement. However, for those who depend on this income to make ends meet, it's important to make sure the dividend-paying companies in their portfolio are solid and reliable. Nobody wants to spend their retirement worrying about a company cutting or suspending their dividend. While nothing is guaranteed, here are three stocks that make solid choices for a portfolio during retirement.

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1. Realty Income Corporation

Realty Income Corporation (NYSE: O) refers to itself as "The Monthly Dividend Company," and it delivers on that promise, paying a dividend on the 15th of each month. In fact, Realty is now considered a Dividend Aristocrat (a company that has increased its dividend for at least 25 consecutive years) after bumping up its dividend for the 26th year in 2021. Realty also has a healthy dividend yield of 4%, easily surpassing the S&P 500's 1.3% yield.

Realty is a Real Estate Investment Trust (REIT), which is an asset that holds a portfolio of real estate. In the case of Realty, those real estate assets are mostly single-tenant retail locations. For example, your local Walgreens or Home Depot location may be owned by Realty. One of the advantages of REITs is they must pay at least 90% of their taxable income to its shareholders. For this reason, REITs make nice additions to retirement portfolios.

Realty has also been a strong performer. In the third quarter of 2021, it reported Funds from Operations (FFO) of $0.89, an increase of 9% over the prior year. Even during the height of the pandemic when several of its tenants were struggling, FFO only dipped below $0.80 per share once, showing the strength of Realty's diversified portfolio of retail locations. Realty also has an average remaining lease term of approximately 8.8 years, which provides clarity on revenues for management and investors.

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2. NextEra Energy

Also celebrating 26 consecutive years of dividend increases is NextEra Energy (NYSE: NEE). This Florida-based electric power and energy infrastructure company is also the world's largest generator of solar and wind renewable energy. These investments make it an appealing investment for a retirement portfolio considering the world's shift toward renewable energy sources. While not all investments in this space work out, NextEra has been able to build out a stable and profitable renewable power business.

NextEra has a dividend yield of 1.8%. While this is only modestly ahead of the S&P 500, NextEra is also a growth company with a lot of potential ahead of it. In Q3, NextEra reported adjusted earnings per share increased 12% year over year, and management stated the company is on track to meet its financial objectives for the full year and beyond. The segment of the business that focuses on renewables also had a strong quarter. Q3 saw the best quarter of overall energy origination, positioning NextEra to be a leader in this growing renewable energy market.

NextEra also has stated expectations for future growth. Management expects 2021 to end with adjusted earnings per share between $2.40 and $2.54. Growth off of that base in 2022 and 2023 is expected to be 6% to 8%, and management stated they will be disappointed if they're not able to meet or exceed those targets.

Image source: Getty Images.

3. McCormick

Consumer flavor company McCormick (NYSE: MKC) has seniority on this list of three, with 35 consecutive years of raising its dividend. McCormick is unavoidable for anyone who's ever walked down the spice aisle in a grocery store. What investors may not know is that a little over one-third of its sales come from food manufacturers and foodservice customers. These two segments helped McCormick navigate the pandemic shutdowns. As restaurant closures hurt the flavor-solutions segment, the rise in at-home cooking helped the consumer segment.

Management predicted the trend toward cooking at home would remain, even as we emerged from the pandemic, while the reopening would help the flavor-solutions segment rebound. Indeed, that's what has happened. As of the third quarter, consumer sales have retained their strength, and flavor-solutions sales hit $628 million after bottoming out at $439 million in the second quarter of 2020.

In Q3, McCormick reported year-over-year revenue growth of 8%. What's more important is that when compared to Q3 of 2019, before the pandemic's impact, net sales, adjusted operating income, and adjusted earnings per share were up 19%, 17%, and 18% respectively. This shows that McCormick has emerged from the worst of the pandemic ready to continue to grow.

To that end, McCormick is already seeing an impact from two important acquisitions. Hot-sauce company Cholula and flavor company FONA were both acquired within months of one another in late 2020, and they are expected to have comprised one-third of 2021 sales growth when fourth-quarter earnings are reported. McCormick is a leader in its space and should be able to continue its track record of success. The current dividend yield is 1.5%, slightly ahead of the S&P 500. The steady and reliable dividend income combined with an iconic consumer brand that's still growing revenue and profits makes McCormick a great stock to hold in retirement.

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Jeff Santoro owns McCormick, NextEra Energy, and Realty Income. The Motley Fool recommends McCormick and NextEra Energy. The Motley Fool has a disclosure policy.


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