One thing many retirees want is an income stream that they can count on to get them through their golden years. While pensions, Social Security, and annuities are the usual go-to options for retirement income, retirees shouldn't overlook dividend-paying stocks. That's because, unlike those fixed-income sources, dividends tend to increase as a company's profits grow, which can help offset inflation as well as unexpected expenses. Three excellent options worth considering are General Electric (NYSE: GE), Kinder Morgan (NYSE: KMI), and Brookfield Property Partners (NYSE: BPY).
The high-yielding industrial giant
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GE has paid dividends to shareholders for more than a century, though the company did slash its payout during the financial crisis as well as the Great Depression to stay afloat. That said, GE quickly restarted dividend growth both times and currently yields a generous 3.96%. While that payout does consume a significant portion of the company's cash flow, due in part to challenges in some of its business lines, it appears to be secure.
Aside from a high current yield, another reason why retirees should consider GE is that the company operates a diversified collection of businesses that should produce relatively stable growth over the long term. While its portfolio has undergone a significant transformation over the years, the current makeup of power, renewable energy, oil and gas, aviation, healthcare, and transportation was put together with the future in mind. In fact, one of GE's focuses is to become the leader of the Industrial Internet of Things by developing the next wave of products that interconnect machines with technology to maximize efficiency. That position should power the company's growth in the years ahead and enable it to increase its dividend over time.
A fast-growing dividend stock for a dirt-cheap price
Natural gas pipeline giant Kinder Morgan found itself in a similar situation as GE a few years ago, which led it to slash its payout so it could weather the oil market storm. However, the company has worked hard to get its financial situation back on solid ground, and because of that, it's poised to deliver significant dividend growth over the next few years. Its current plan is to boost the payout 60% next year and by 25% in both 2019 and 2020. That forecast suggests that investors who buy today are getting much more than a 2.6% yielding stock because its growth plan implies an eye-popping yield of 6.4% in 2020 for investors who buy at the current price. Furthermore, the company can completely cover those dividend increases with current cash flow, though it does have an extensive backlog of high-return growth projects that should steadily increase cash flow over the next few years.
Aside from that highly visible dividend growth, another reason why retirees might want to consider buying Kinder Morgan is that its stock is incredibly cheap these days. While the market has risen sharply over the past year and is bumping up against a new all-time high almost daily, Kinder Morgan, like GE, hasn't joined the run. In fact, both have declined by double digits over the past year. Consequently, Kinder Morgan is now selling for less than 10 times free cash flow, which is half its peak valuation and 50% less than what most competitors trade for these days. That means retirees can get growth and income for at a bargain-basement price.
Be a landlord without all the work
Real estate partnership Brookfield Property Partners offers retirees the opportunity to collect rental income without all the hassle. The company owns a diversified portfolio of properties, including iconic office buildings, top-tier malls, and an upcoming collection of urban multifamily locations as well as holding opportunistic investments in a variety of other real estate classes like industrial, self storage, and student housing. These properties generate relatively consistent income, which Brookfield Property Partners distributes to investors.
Currently, the company yields an enticing 5%. However, its plan is to increase that payout by 5% to 8% annually through a combination of rent growth, reinvestment gains, and development projects. The company also believes that its in-place growth from these three factors has the potential to double earnings by 2021, which gives retirees the potential to earn a compelling total return over the next few years.
Income with upside
Most retirement-focused income streams pay a fixed rate, which could become a problem for retirees if their expenses are higher than expected due to inflation or other factors. That's why I think it's a good idea to also invest in dividend-paying stocks that have a high probability of growing their already generous payouts over time, which is just what I'd expect from GE, Kinder Morgan, and Brookfield Property Partners.
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Matthew DiLallo owns shares of Brookfield Property Partners and Kinder Morgan and has the following options: short January 2018 $30 puts on Kinder Morgan, long January 2018 $30 calls on Kinder Morgan, and short December 2017 $19 puts on Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool has a disclosure policy.