In retirement, seniors on average see an annual shortfall of about $4,000 between the income they generate and the expenses they incur, according to data from the Bureau of Labor Statistics.. Whether you want to protect yourself from unexpected healthcare expenses, inflation, or just want to travel, there are plenty of reasons you may want to give yourself a bit of breathing room and increase your income in the long term.
If you can afford to invest $68,000, three stocks that can help you generate at least $4,000 in annual dividends are Organon (NYSE: OGN), Dominion Energy (NYSE: D), and AT&T (NYSE: T).
Organon -- $25,000
Organon has a broad portfolio of products and therapies that include 60-plus medicines and products, with a big focus on women's health. The company was spun off from Merck just over two years ago and has been proving itself to be a profitable and stable business thus far. In each of the past four quarters, the company has turned a profit. Its top line has consistently been around $1.5 billion.
Organon shares are trading at a modest seven times earnings, which gives investors some good bang for their bucks as the average healthcare stock trades at a multiple of 24. It also pays an attractive dividend yield of 5.4%, which is more than three times the S&P 500 average of 1.5%. The high payout looks sustainable given that Organon's payout ratio is relatively modest at less than 40% of earnings.
Investing $25,000 into the healthcare stock would net you approximately $1,350 in annual dividend income. When combined with its low valuation and stable operations, Organon can be an ideal option for risk-averse investors.
Dominion Energy -- $25,000
Another good place in which to consider investing $25,000 is Dominion Energy. The company runs a large utility business serving 7 million customers with its electrical lines and natural gas pipelines. Utility companies often are good dividend investments because they provide essential services to customers that they can't go without. Whether inflation is up or the economy is in bad shape, demand isn't likely to waver significantly.
One thing that can impact earnings is the weather. And due to milder weather coming along with some unplanned outages at one of its locations, Dominion has adjusted its guidance for the second quarter. Operating earnings per share is now expected to be between $0.44 and $0.50, down from an earlier estimate of $0.58 and $0.60.
In the first quarter, which ended in March, the company's operating earnings per share totaled $0.99. While there will be fluctuations in that number based on the time of the year, the dividend should still be sustainable as Dominion pays $0.67 per quarter.
Q2 operating earnings will fall short of that, but this is also during one of the warmer periods of the year. The bottom line should bounce back later on. Dominion's yield is at just under 5.1%. Investing $25,000 into the utility stock can bring in another $1,275 in annual income for your portfolio.
AT&T -- $18,000
Telecom giant AT&T pays the highest yield on this list at 7.7%, so investors would only need to invest $18,000 to collect approximately $1,386 in annual dividends. Combined with the other stocks on this list, that would put your total dividend income at approximately $4,011.
But there's also some added risk with this business, which is why I would allocate a smaller investment to AT&T. The biggest risk is the potentially large liability it may face in cleaning up lead cables throughout the country, which arose due to an investigation by The Wall Street Journal. It could saddle AT&T with tens of billions in unexpected expenses. One analyst pegged the total liability potential as high as $59 billion -- although this would be for the entire telecom industry, not just AT&T.
Investors have been reacting negatively to these developments, sending AT&T stock to near 30-year lows. While it's concerning, it's also a bit premature for investors to react so quickly and bearishly to the news. While AT&T may have to spend billions, it's too early to know what the cost will be and over what time frame the company may have to pay it out.
It's an unnerving situation for dividend investors, but AT&T still has a large and profitable business, reporting an operating profit of $22.9 billion last year. This was just under 19% of revenue. The company has room to absorb some additional expenses, and it could still take years for the impending legal battle to play out.
With the stock taking a beating of late, a lot of the bearishness is arguably already priced into its valuation, with investors expecting the worst. But I don't think it will come to that. That's why AT&T can make for a good bad-news buy right now.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy.
