Dividend stocks can be your best friend in retirement -- especially when their payouts allow you to cover your living expenses without selling shares. But investors shouldn't mindlessly chase high yields. Stocks that offer sky-high yields of 10% to 15% can be tempting, but they're often risky investments.
With that in mind, retirees and soon-to-be retirees should try to find above-average yields, but they shouldn't go looking in the dumpster for them. A better strategy is to seek quality companies that look like they'll be able to keep paying (and raising) their dividends over the long term.
These three blue-chip dividend stocks with yields between 4.8% and 7.8% today fit that description. Their dividends are well covered, and they should produce enough growth to manage payout hikes that at least keep up with inflation in 2025 and beyond.
1. Altria Group: 7.8% yield
Although smoking rates have been declining for decades in the United States, Altria Group(NYSE: MO), which sells Marlboro cigarettes (among other brands) domestically, has raised its dividend for over 50 consecutive years. This has earned it the rare Dividend King designation. Altria still makes most of its money from cigarettes, but has grown its bottom line by steadily raising its prices enough to more than offset the fact that it sells fewer cigarettes with each passing year.
Analysts estimate the company's 2024 earnings will be $5.12 per share, giving it a manageable dividend payout ratio of 80%. Management generally uses the cash after paying the dividend to repurchase shares, which has grown its per-share dividends and profits. Altria has milked its cigarette business for years, and its strategies are still working. The company has grown its earnings at a 4.4% annualized pace over the past five years, and analysts estimate it will grow them by 3.5% annually over the next three to five years.
Altria will eventually need to move beyond cigarettes, and it's working on that. The company is pushing next-generation products such as oral nicotine pouches, heat-not-burn tobacco cartridges, and electronic cigarettes (vapes). How Altria develops these products over the next decade will determine its long-term prospects. Still, retirees who buy and hold the stock will be able to rely on the company's near- and medium-term ability to pay and raise its dividend.
2. AT&T: 4.8% yield
Telecom giant AT&T(NYSE: T) now operates the third-largest wireless network in the U.S. by market share. The company has existed in various forms since the late 1880s, and today is focused on its core communications business after a tumultuous decade that it spent trying to become a successful media streaming company. Over the years of attempting to evolve its business model, AT&T loaded itself with debt. That period culminated with a dividend cut in 2022 intended to free up cash flow that it could use to pay down what it owes.
While in some cases, a company having a dividend cut in its recent past can be a sign for investors to avoid the stock, AT&T's payout reduction made it an excellent dividend stock again. Management expects to end 2024 with $17 billion to $18 billion in free cash flow versus a dividend commitment that amounts to about $8 billion annually. In other words, AT&T is spending less than half its cash flow on its dividend, giving it plenty of financial breathing room. Its debt is declining, which is positioning the business for a new era of dividend growth thanks to AT&T's healthiest financials in years.
Don't expect too much growth from AT&T. Analysts estimate that it will grow earnings by an average of 3% annually over the next three to five years. Still, that would be enough for management to raise the dividend slowly, with room to expand the payout ratio if AT&T chooses. Either way, investors can look forward to dependable dividends thanks to management's wise decision to rightsize the payout.
3. Enbridge: 6.3% yield
Energy still makes the world go round, so business should stay strong for Enbridge(NYSE: ENB), one of the largest energy companies in North America. The Canadian company owns a network of pipelines that transport oil and natural gas throughout the continent, North America's largest natural gas utility by volume, and a portfolio of renewable energy projects, among other businesses. The company makes money primarily from transport and distribution fees, so it enjoys more durable revenue streams than upstream oil companies, which are more sensitive to commodity prices.
Enbridge has proven this by increasing its annual dividend payouts for 29 consecutive years, and it has already announced its 30th to take effect in early 2025. Enbridge pays its dividends in Canadian dollars (CA$), but U.S. investors will see their payments automatically translated to U.S. dollars. For 2025, management plans to pay total dividends of CA$3.77 per share, and is guiding for between CA$5.50 and CA$5.90 in distributable cash flow, which would give it a healthy payout ratio in the range of about 64% to 69%. That's right in the 60% to 70% range where management wants it.
North America's steadily growing energy demand should ensure Enbridge stays busy. Management expects the company's cash flow to grow at a low single-digit percentage rate through 2026 and then accelerate to approximately 5% annualized growth. Therefore, investors can count on the dividend and expect Enbridge to continue building on its growth streak.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Enbridge. The Motley Fool has a disclosure policy.
