Planning for retirement has never been this difficult. Pension plans are no longer as common as they were a few decades ago. Only 20% of Fortune 500 companies offered a pension or defined benefit plan to new hires in 2015 compared with 59% in 1998, according to advisory firm Willis Towers Watson.
If you’re among those savers who have to plan for their retirement journey solo, then unfortunately, you won’t find many high-yielding opportunities to earn a decent income stream. In the persistently low interest-rate environment of the past decade, savings accounts pay close to zilch, while the return on government bonds has been extremely low.
However, investing in dividend growth stocks offers one way to build up wealth for your golden years. Companies that offer regular dividend hikes run mature businesses that could provide stability and growth for your portfolio. Keeping these benefits in mind, we’ve picked three dividend-growth stocks to consider.
1. Duke Energy
Power and gas utilities are among the best picks for retirees due to their tendency to pay growing dividends. In this space, Duke Energy (NYSE:DUK) is an attractive option. Through its diversified power, gas and storage businesses, Duke plans to deliver between 4% and 6% annual dividend growth.
We believe the utility is well-positioned to reward its long-term investors following a major restructuring of its portfolio in recent years. The shakeup included selling carbon-based power assets and foreign operations, buying a natural gas utility and expanding its reach in renewable power.
Owning Duke shares make sense for retirees because their regulated business models make their cash flows predictable, meaning there’s little risk of negative surprises. The company has a $37 billion development plan to run until 2022 to support the company’s inflation-beating dividend growth.
The stock has gained almost 13% in the past 12 months, 24% since 2014, closing yesterday’s session up 0.3% at $89.62 a share.
Duke Energy price chart
During the past five years, Duke has delivered about 25% capital growth, including dividends, Even with these gains, the utility’s 4.2% dividend yield is attractive enough to make a long-term bet on this stock.
2. Apple Inc.
There aren’t many high-powered technology stocks that could satisfy the conservative income investor whose aim is to earn steadily growing income and preserve capital. But the maker of popular iPhones, Apple Inc (NASDAQ:AAPL) is an exception.
Apple’s high profit margins on devices like the iPhone and iPad and services such as Apple Music make the company a great cash cow for years to come. As of the first quarter this year, Apple had $245 billion in cash on hand, making it one of the most cash-rich companies in the world. Apple said last year it intends to eventually reach a zero net cash position.
The shares, up 6.8% in the past 12 months and a whopping 114% since 2014, have risen over the last two sessions to close yesterday at $203.23.
Apple price chart
Don’t be disappointed by Apple’s current, tiny 1.5% dividend yield. Apple is offering a powerful combination to boost the total return for its investors in the shape of increasing dividends and a massive share buyback plan.
In April, Apple increased its share buyback plan by $75 billion and raise the quarterly dividend by 5% to $0.77 per share. During the past five years, Apple delivered the average dividend growth rate of 10.50% a share per year that was large enough to beat inflation and provide hefty passive income to retirees.
3. Verizon Communications
Just like power and gas utilities, telecom operators are also great income producers. No matter which direction the economy goes, internet and wireless connections will be among the last items consumers delete from their must-have lists. This predictability and stickiness increases their income appeal for long-term investors.
In this space, Verizon Communications (NYSE:VZ) is a good pick for retirees. The company has a solid track record of rewarding investors with dividends growing since 2007. The company currently pays $0.60 a share quarterly payout that translates into an annual yield of 4.3%.
CEO Hans Vestberg, who joined Verizon last summer after working at network-equipment maker Ericsson (BS:ERICAs) for decades, is cutting investments in the risky areas, such as media, to fully focus on network expansion. Indeed, Verizon is leading the race to introduce fifth-generation or 5G technology, becoming the first carrier to roll out 5G phones in parts of Chicago and Minneapolis.
Verizon price chart
The shares rose 1.1% yesterday, to close at $57.01, having gained 11% over the last year and 15% since 2014.
Telecom shares may not provide hefty capital gains, particularly when compared to high-growth stocks. But these stocks are defensive in nature and help retirees in times of economic distress.
Investors aiming to earn a steadily growing income in order to save for retirement will find that putting money into stable dividend growth stocks isn’t a bad idea. Retirement portfolios can be slowly built up over time by adding quality income stocks at the right moment when they are selling cheap and offering good entry points. The above stocks would be a good fit for any such investment plan.