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3 Dividend Stocks That Are Perfect for Retirement

Jeremy Bowman, Steve Symington, and Demitrios Kalogeropoulos, The Motley Fool
Motley Fool

No other type of investor is more dependent on dividend stocks than retirees. Americans who have moved beyond their working careers count on the additional income from their investments to supplement Social Security checks and other income streams, like pensions, that they may have. Retirees look for dividend stocks that are safe, reliable, and, ideally, capable of delivering growth to carry them through their golden years. With that in mind, keep reading to see why our contributors recommend McDonald's (NYSE: MCD)Corning (NYSE: GLW), and Starbucks Corporation (NASDAQ: SBUX)

A person hands a $100 bill to another person.

Image source: Getty Images.

Convenience is timeless

Demitri Kalogeropoulos (McDonald's): There are many things to love about McDonald's as an investment, but retirees might find its rock-solid growth record particularly attractive. The fast-food titan is celebrating the 50-year anniversary of its Big Mac burger in 2018, after all, and iconic brands like that have combined with new premium sandwiches to keep the chain on top of its industry lately.

Sales growth might be pressured in the short term by sluggish customer traffic in the core U.S. segment, but McDonald's executives have a plan to stem that trend by applying a formula that's already working in international markets to the domestic stores, including upgrading restaurants and adding compelling menu items. Few, if any, of its rivals are in the financial position that McDonald's is, where it can easily afford to invest $2.4 billion in modernizing and upgrading its locations this year alone.

Over the longer term, retirees can expect to see a dividend that continues marching higher just as it has in each of the past 42 years. This payout is supported by sales growth, but also by McDonald's market-thumping, and still expanding, profitability. Operating margin is on track to reach the mid-40s percentage range by 2019, up from just 30% in early 2016.

A resilient combination of price appreciation and capital returns

Steve Symington (Corning): When shares of Corning fell despite the company's strong quarterly results earlier this year, I insisted patient investors in the glass-technology leader shouldn't worry. After all, from its enormous optical and display technologies businesses (think fiber-optic cable and equipment and LCD glass substrates) to its smaller specialty materials operations (including the wildly popular Gorilla Glass line), Corning consistently builds its business and rewards shareholders with long-term growth in mind. And under its four-year strategic and capital-allocation framework launched in 2015, it remains on track to return at least $12.5 billion to investors through buybacks and dividends while simultaneously investing $10 billion in the business to capture future growth opportunities. When that framework is complete late next year, I would be shocked if another similar plan didn't replace it.

In any case, in late July that pullback turned out to be a buying opportunity -- or rather, a great time to reinvest dividends for investors who already owned the stock --- when Corning posted another great quarter and gave our fickle market no choice but to recognize its strength. CEO Wendell Weeks pointed out that, as in the past few quarters, each of Corning's businesses met or exceeded expectations. And with several large-capacity expansion projects coming online in recent months, Corning anticipates a significant boost in both sales and profits.

So between Corning's enviable capital returns efforts and its history of beating the market even excluding dividends, I think it's an absolutely perfect stock for retirement.

A caffeinated dividend boost

Jeremy Bowman (Starbucks): One of the fastest-growing dividend stocks in recent years has been Starbucks. The global coffee chain first started paying a dividend in 2010, and has grown it by 20% or more each year since. That streak won't continue forever, but it's a sign of Starbucks' commitment to rewarding shareholders, and representative of its considerable profit growth in recent years.

However, Starbucks shares have pulled back recently, setting up an appealing buying opportunity for dividend investors as the stock now offers a dividend yield of 2.7% -- about the highest it's ever been. Though the company has faced challenges recently with comparable sales slowing, it still has a number of opportunities for growth ahead, including China, delivery and mobile pick up, and premiumization through its Reserve cafes and Roasteries. Starbucks' recent opening in Milan of its third Reserve Roastery in the world was a reminder of the special power of the brand.  

Meanwhile, profit growth remains solid with earnings per share up 13% in the most recent quarter, and the company continues to aggressively open new stores, adding 511 new locations last quarter. Operating margin is at 16% so far this year, showing the strength of the business and the brand.

Starbucks' payout ratio of 64% still offers room for the company to increase its dividend without a corresponding increase in earnings, but over the long term, Starbucks' annual dividend hikes will probably be closer to 10%. Still, starting with a yield of 2.7% today, that represents solid growth, and the company has the kind of global brand to reassure retirees that its dividend is safe and reliable.

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Demitrios Kalogeropoulos owns shares of McDonald's and Starbucks. Jeremy Bowman owns shares of Starbucks. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool recommends Corning. The Motley Fool has a disclosure policy.

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