Retirement is a time to shift one's investment portfolio to a more defensive posture. If this can be done while generating income via dividend payouts, so much the better. We asked three of our Foolish investing contributors to offer up their picks for a dividend stock that's perfect for retirees on the market today. Here are all the vital details on Deutsche Telekom (DTEGY 0.03%), Enbridge (ENB 0.76%), and Johnson & Johnson (JNJ -2.50%).
Image Source: Getty Images.
Heading abroad in search of dividend income
Sean O'Reilly (Deutsche Telekom): My pick for perfect dividend stocks for retirees requires a trip abroad: to Germany. Deutsche Telekom, headquartered in Frankfurt is the German version of AT&T. And, like its American cousin, Deutsche Telekom has the stability, profitability, and growth potential that make it a perfect addition to any portfolio in retirement mode. For the second quarter of fiscal 2017, net revenue grew by 6% to 18.9 billion euros. Adjusted EBITDA rose by 8.9% to 5.9 billion euros. Profit growth stood out in the period, rocketing up 40.7% to 874 million euros.
Telekom was the only mobile provider to record positive growth in Europe in Q2 as its mobile customer count surpassed 42 million. Adjusted EBITDA is now expected to reach some 22.3 billion euros for the year, up from the 22.2 billion euros initially forecast. In spite of decent domestic results, this positive update was, in actuality, driven by strong growth in the United States. You see, Deutsche Telekom also happens to be the majority owner (64.4% ownership as of June 30, 2017) of U.S. wireless carrier T-Mobile. It is this division that is likely to drive results in the future. Fueled by its "Un-carrier" philosophy, T-Mobile continues to be a standout in U.S. mobile market. In the second quarter alone, T-Mobile added more than 1.3 million new customers. Revenue for the U.S. carrier increased 9.7% year over year to over $10 billion. With a 3.7% yield, and shares available in the United States via American depositary receipts (ADRs), Deutsche Telekom is worth considering for any retiree.
A high-growth high yield
Matt DiLallo (Enbridge): Canadian energy infrastructure giant Enbridge is a perfect investment option for retirees because it pays a well-supported income stream with highly visible growth prospects. Underpinning its current 4.7% yield is the fact that take-or-pay contracts and other predictable sources provide 96% of the company's cash flow. In addition to that, Enbridge has an investment-grade balance sheet, with leverage on pace to fall below its 5.0 times target by the end of 2019 as its growth projects start up. On top of that, the company only pays out between 50% to 60% of its cash flow, leaving ample cushion.
The company uses that excess cash flow, along with its balance sheet strength, to build additional cash flowing assets. Currently, the company has 31 billion Canadian dollars ($24.9 billion) worth of growth projects under construction that should enter service through 2020, with more than CA$40 billion ($32 billion) of additional expansions under development to drive growth early next decade. This massive backlog provides Enbridge with visible cash flow growth, which supports the company's view that it can increase the dividend by a 10% to 12% annual rate through 2024.
Enbridge offers retirees the best of both worlds. They can collect a lucrative current income stream to help pay their bills, which should increase by a healthy rate in the coming years to help offset some cost inflation, making it an ideal stock to own through retirement.
A top healthcare stock of past, present, and future
Keith Speights (Johnson & Johnson): Through the years, Johnson & Johnson stock has been one of the most consistent performers for investors. That's especially true for retirees. There are few stocks that retirees can depend on for reliable dividends like Johnson & Johnson. J&J is a member of the elite group of Dividend Aristocrats and has increased its dividend for 55 consecutive years.
It's not just J&J's dividend that makes the healthcare giant attractive, though. Johnson & Johnson stock has beaten the S&P 500 index in performance over the last three years, the last five years, and the last decade. And those winning ways continue in the present: J&J stock has outgained the S&P 500 so far in 2017.
What about the future? J&J is a leader in three areas of healthcare: consumer products, medical devices, and pharmaceuticals. All three areas should benefit from aging demographic trends in the U.S. and in much of the rest of the world.
There are a couple of reasons why J&J should remain a leader in healthcare. One is its investment into research and development: J&J ranks No. 4 in pharmaceutical R&D spending. Another is its ability to make smart acquisitions. If you're looking for the perfect retirement stock, Johnson & Johnson's past and present performance along with its future potential make it a top contender.
