Dividend stocks can be reliable sources of extra income for retirees, but like any equity, they’re never going to be totally free from risk. So it’s important to weigh a dividend stock’s risk profile against its ability to provide a steady stream of income for long periods of time.
Keeping this theme in mind, we turned to our contributors to ask them which dividend stocks they think are perfect vehicles for retirees. They suggested Bristol-Myers Squibb (NYSE:BMY), Target (NYSE:TGT), and Seagate Technology (NASDAQ:STX). Read on to find out why these three stocks might be stellar income stocks for retirees.
This big pharma is a great source of passive income
George Budwell (Bristol-Myers Squibb): Pharma stocks in general tend to be outstanding sources of passive income because of their extraordinary free cash flows and exceptional growth prospects. But Bristol-Myers Squibb is arguably in a class by itself — even within this elite group — because of its recent pivot toward immuno-oncology and cardiovascular care.
The long and short of it is that Bristol’s top line has been growing by double digits lately as the result of its highly successful PD-1 inhibitor Opdivo that’s indicated for a variety of cancers, along with the breakout success of its next-generation blood thinner, Eliquis. In the first quarter of 2017, for example, these two drugs saw their sales grow by an astounding 60% and 50%, respectively, relative to 2016.
As a direct result, Bristol’s 12-month trailing payout ratio has now fallen to only 53%, which is rock bottom for a pharma stock. So while Bristol’s current yield of 2.87% is below average with its peer group, the company can — and probably will — up its payout soon. Equally as important, Bristol’s dividend appears to be sustainable for the long haul, making it an outstanding source of passive income for retirees.
Hit the target with this stock
Dan Caplinger (Target): The retail industry has gone through some tough times, and even stalwarts like Target have been struggling to find ways to get through difficult conditions. Target stock is at levels the company hasn’t seen in more than five years, and some investors are concerned that the retailer won’t be able to withstand the pressures from e-commerce specialists and other competitors. Companies that don’t have brick-and-mortar locations enjoy substantial cost savings over the vast amounts that Target has to spend on its store footprints. Meanwhile, even other big-box retailers have striven to build up their online presence, threatening to leave Target behind. Yet Target is working hard to answer those challenges, with programs like Target Restock aimed toward meeting consumer demand for quick turnaround…