3 Dividend Stocks for Retirement

Markets Motley Fool

Investing in stocks during retirement might seem like a risky proposition. But it doesn't have to be for those who know where to look, especially if you can offset that risk with the promise of steady dividend payments.

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To that end, we asked three top Motley Fool investors to each pick a dividend stock that they believe investors can safely hold in retirement. Read on to see why they chose Disney (NYSE: DIS), Texas Instruments (NASDAQ: TXN), and Mastercard (NYSE: MA).

The House of Mouse is changing fast

Steve Symington (Disney): Disney needs no introduction given the unrivaled brand power of its namesake parks, movie studios, and network TV channels. But not everyone appreciates the fact that it also owns Pixar (purchased for $7.4 billion in 2006), Marvel (bought for $4 billion in 2009), and Lucasfilm (picked up for $4.05 billion in 2012), all of which prove its ability to drive growth through astute acquisitions should the opportunity arise.

At the same time -- and to be fair -- Disney owns all of ABC and an 80% stake in ESPN, where cord-cutting and declining subscriber bases have left the market worried over Disney's ability to successfully navigate today's changing media landscape. Last month, though, Disney announced plans to launch an ESPN-branded multisport streaming service in 2018, followed by a Disney-branded streaming service featuring new theatrical releases from both Disney and Pixar in 2019. Disney CEO Robert Iger called it the start of "an entirely new growth strategy" for the company that should position it to more effectively "leverage the strength of [its] great brands."

But Disney stock is still trading around 15% below its 52-week high set in April, and just 15.5 times forward earnings, which makes me believe the market is underestimating its ability to survive and thrive over the long run. Coupled with Disney's healthy 1.6% dividend (noting aims to return around 20% of all cash generated to shareholders through dividends and repurchases), I think Disney is about as compelling a portfolio candidate as retired investors can hope for.

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A shareholder-friendly semiconductor giant

Leo Sun (Texas Instruments): Semiconductor stocks can be risky plays for retirees, since chipmakers that are too dependent on a single customer or sector could generate cyclical returns instead of stable ones. Therefore, the only chip stock I'd recommend to retirees is Texas Instruments, which rallied 150% over the past decade.

TI sells a well-diversified portfolio of analog and embedded chips for the industrial, automotive, personal electronics, communication equipment, and enterprise systems markets. Growth in one segment usually offsets weakness in another segment. In recent quarters, TI's growth in the automotive and industrial markets (which generated over half of its revenues last year) offset declines at its personal electronics and enterprise systems markets. Its shift to a 300-mm manufacturing process also cut its production costs by about 40% and keeps its gross margins well above 60%.

As a result, TI offers robust but stable growth. Analysts expect its revenue and earnings to respectively rise 10% and 24% this year. TI also aims to return 100% of its free cash flow to shareholders via dividends and buybacks. The company hiked its dividend annually for 14 straight years and reduced its share count by 42% during that period, all while growing its free cash flow at a compound annual growth rate of 8%.

TI currently pays a forward dividend yield of 2.3%, which is higher than the S&P 500's current yield of 2%. Its trailing P/E of 22 also represents a slight discount to the industry average of 24 for semiconductor makers -- making it a reasonably valued play in a frothy market.

The yield is small, but this stock offers retirees something important

Jason Hall (Mastercard Inc.): For retirees, having a dependable source of steady income is very important, and their eagerness can often cause them to overlook a stock like Mastercard, with a minuscule dividend yield of 0.7% at recent prices. But since most people who reach retirement age will live into their 80s, retirees should also invest part of their nest egg for long-term growth, too. 

And Mastercard's growth prospects are fantastic. Electronic payments are dominant in most developed economies, but they still make up a bare fraction of global transactions. Over the next couple of decades, the number of people using mobile devices with an internet connection is going to explode, right along with the roughly 1 billion-member expansion of the planet's middle class. 

With one of the biggest, most secure, and reliable electronic payment networks in the world already in operation, and a globally recognized brand, Mastercard is positioned to be a big winner from this expansion. Over the past decade, Mastercard's earnings per share have surged over 400%, allowing it to increase the dividend a whopping 13-fold. Combine that with a 836% increase in the stock price, and it's been an amazing run. 

Looking 10 years and more into the future, and there's plenty of reason to expect that strong run to continue, rewarding retirees with both stock price and dividend growth that should help support your financial needs well into your golden years. 

Find out why Walt Disney is one of the 10 best stocks to buy now

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Mastercard and Walt Disney. The Motley Fool has a disclosure policy.