The right dividend stock can be an excellent addition to your retirement fund. Stable companies with high dividend yields can meet your investment income needs while allowing you to sleep well at night. These are two of the most significant requirements for investment portfolios for retirees.
Keep in mind that these aren't high-flying, high-risk growth stocks that experience sharp drops every so often. These stocks hum along at a steady pace, paying out significant cash dividends to shareholders every quarter.
Illinois Tool Works
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Illinois Tool Works had a tough 2020, with revenue down 10% from the previous year. The second half of the year saw a return to positive performance, which was more promising. Management forecasts 2021 to be a rebound year. They expect double-digit revenue and earnings-per-share (EPS) growth, as well as increased profit margins. They also expect free cash flow to exceed earnings, implying that such accounting gains will be converted into cash that can be returned to shareholders. After weathering the storm, the organization could look forward to brighter days ahead.
Despite these operating difficulties, ITW raised its quarterly dividend from $1.07 to $1.14 per share last year. That's why Dividend Aristocrats are a favorite among retirees: they seem to deliver good news when everything else is falling apart. With a 67 percent payout ratio, ITW pays a forward dividend yield of nearly 2% at this time. Investors should expect quarterly dividends to keep growing in the future, given the company's positive outlook and economic moat.
MPLX
MPLX (NYSE: MPLX) is a master limited partnership (MLP) created to own and manage the midstream assets of Marathon Petroleum (NYSE: MPC). These assets include storage and transportation equipment, like terminals, gathering facilities, pipelines, and reservoirs. Generally, midstream companies are less affected by crude oil and refined product market prices than other parts of the energy industry.
MPLX announced a 6.4 percent decrease in operating revenue for the full year 2020, owing to lower crude oil and natural gas transportation volumes. When oil prices fell last year, energy exploration and production firms shut down capacity to lower volume. The MLP has made an attempt to cut capital spending and divest assets that were not generating high returns on investment. Going forward, the energy market appears to be more stable, and a return to travel this summer could cause production volumes to increase. As a result, the activities of storage and transportation firms in the midstream will be further solidified.
MPLX was able to retain its quarterly dividend despite last year's disruption. In the last quarter of 2020, MPLX's distribution coverage ratio was a solid 1.58, showing that the firm is delivering more than enough cash to finance its dividend. The MLP also reduced debt to income ratios, demonstrating its emphasis on financial health. To mitigate risk, retirees should prioritize financially sound stocks.
That is an excellent opportunity for investors to obtain long-term cash flow at a low cost. The stock's 10% dividend yield is remarkably high, meaning that the market expects the payout to be cut in half. If the worst of our economic woes has passed, it's hard to imagine MPLX's dividend being slashed too drastically. Even if the yield was cut in half, it would still be well above average at 5%. This MLP generates too much money for retirees to pass up.
Snap-on
Snap-on (NYSE: SNA) is a tool and storage company that also offers software and other equipment. The company mainly sells to auto mechanics, but it also has customers in aerospace, agriculture, manufacturing, and defense. Snap-on sells directly to customers across 4,800 retail locations and an online store. It also has a mobile sales truck franchise network and a financing division that provides loans to large buyers.
Snap-on wasn't immune to the pandemic's effects last year, with sales down 3.7 percent. However, things took a turn for the better in the first quarter of this year, with sales up 20% year-on-year. Granted, given the full halt of commerce in March, we should expect better results, but this most recent news is still very promising.
The real value that Snap-on provides its shareholders is stability. Since 1939, the stock has paid quarterly dividends regularly, which could appeal to retirees. Snap-on’s quarterly dividend of $1.23 per share corresponds to a current dividend yield of 2%. The quarterly distribution has increased significantly from $0.71 per share in 2017, indicating a bullish trend. The company's low 37 percent payout ratio indicates that it is bringing in enough cash to maintain the current dividend — and possibly even increase it in the future.
