Dividend stocks can be valuable investments for retirees who want a consistent stream of income flowing into their portfolio on a regular basis. And stocks that increase their payouts can be especially valuable, as the rising dividend income can help them offset the effects of inflation. In addition, stocks that don't have a high degree of volatility can also minimize the overall risk for retirees and other risk-averse investors.
Three stocks that check off all of those boxes are AbbVie (NYSE: ABBV), Coca-Cola (NYSE: KO), and Southern Company (NYSE: SO). Here's a closer look at these stocks and why they can be ideal options for retirees today.
1. AbbVie
AbbVie is a large pharmaceutical company whose focus on growth and innovating new products can make it a great dividend stock to own, as its earnings growth will leave room for the business to continue increasing its payout. It has leaned on acquisitions to expand its pipeline of drugs, and this year it acquired oncology company ImmunoGen, which makes antibody-drug conjugates, as well as Cerevel Therapeutics, which is involved in developing neuroscience drugs.
AbbVie has generated strong free cash flow totaling $17.8 billion over the trailing 12 months, which is more than enough to cover its dividend payments totaling $10.8 billion, while leaving plenty of money left over for the business to invest in growth initiatives, including pursuing acquisitions.
The stock currently pays a dividend that yields 3.3% -- more than twice the S&P 500 average of 1.3%. And in five years, AbbVie has increased its quarterly dividend by 45%, which averages out to a compound annual growth rate (CAGR) of 7.7%. At that rate, it would take a little more than nine years for the dividend to double in value.
The stock has a beta value of around 0.6, which indicates it's fairly stable with respect to the overall market, making it a lower-risk investment to own. And with a reasonably fast-growing dividend, it's a solid income stock overall for retirees to buy today.
2. Coca-Cola
Soft drink and beverage giant Coca-Cola may not be a fast-growing business, but it can be an excellent one to buy and forget about due to its resiliency. Price increases in recent years have allowed the company to generate growth amid inflation. This demonstrates the impressive brand power Coca-Cola continues to possess by being able to raise prices without adversely affecting demand for its products.
Last year, Coca-Cola reported $45.8 billion in revenue, an increase of more than 18% from just two years earlier. During that time, profits also rose by 10%.
Coca-Cola has been a dividend growth machine, having increased its payout for 62 consecutive years, with its most recent being a 5.4% boost. In the past five years, the company has raised its quarterly dividend by 21%, for an average CAGR of 3.9%. It would take 18 years at that rate of growth for the dividend to double. But with inflation coming down of late, if Coca-Cola maintains that level of dividend growth, that should still be high enough to ensure retirees come out ahead after factoring in rising costs over the years.
Coca-Cola's stock has a beta of around 0.6, which is similar to AbbVie, as it too can make for a safer income stock to buy and hold for the long haul. Currently, the stock yields 2.8%.
3. Southern Company
A utility company can make for another dependable dividend stock to own, as it can generate a lot of consistency for investors in its earnings. Southern is an energy company that serves 9 million people in the U.S., with a strong presence in the Southeast. It has a broad mix of assets in its portfolio, with electricity, natural gas, solar, wind, and other energy sources providing its customers with power.
Southern has generated at least $23 billion in revenue in each of the past three years, and during that time, its profit margin has been more than 10% of its top line. The company's stable, modestly growing business can make it a great option for retirees looking for an investment they don't have to worry much about.
Earlier this year, Southern announced it was going to increase its dividend for a 23rd straight year. It yields 3.1% today, and the company has raised its dividend by 16% in five years, for a CAGR of just over 3%. While that's the lowest growth rate of the stocks listed here, under normal periods of inflation (i.e., around 2%), this too should be a dividend stock whose growing dividend income can offset the rising cost of living in the long run.
Southern's beta is 0.5, which means this has been the least volatile stock of the three investments listed here, making it yet another example of a good risk-averse stock for retirees to hang on to for the long haul.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie. The Motley Fool has a disclosure policy.
