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When you are inching closer to retirement, your investment profile changes considerably. You are no longer working in retirement which means you need to invest in low-risk vehicles such as bonds. However, bond yields might be unable to beat inflation rates which means you are losing the real value of your capital over time.
Retirees can instead, consider stocks that have a low beta, a strong balance sheet, steady cash flows, and that also have healthy dividend yields. The recent broader market sell-off has increased the dividend yields of several companies significantly higher. However, you also need to consider a variety of aspects before investing in high yield companies.
Here we look at three low-risk equity investments that pay dividends and are ideal for retirees.
A real estate investment trust
The first stock on the list is Realty Income (NYSE: O), a real estate investment trust (REIT). This REIT specializes in single-tenant retail properties. While the retail sector has been decimated amid the COVID-19 pandemic, what makes Realty Income a must-have is its portfolio of recession-resistant tenants.
Realty Income leases out properties to drugstores, dollar stores, and convenience stores. This company is top buy for retirees and has paid a monthly dividend for 602 consecutive months or for 50 years. It has increased dividend payouts in the last 108 quarters and has generated annual returns of an enviable 15.3% since its IPO.
Realty Income has a forward yield of 4.6%. and in the second quarter, it collected rent from 87.8% of its tenants. This figure improved to over 90% for the months of July and August.
A renewable energy giant
Renewable energy is the future and this sector is going to attract billions of dollars in investments over the next few decades. One company that has established itself as a market leader in this space is NextEra Energy (NYSE: NEE), a stock that has already returned 500% in the last 10 years, easily outpacing the S&P 500.
The renewable energy heavyweight recently increased its earnings forecast for 2021 by $0.20 per share which was above the higher end of its guidance between 6% and 8%. Further, the company expects earnings growth between 6% and 8% through 2023 and plans to increase dividend payouts by 10% per year in the next two years.
NextEra stock has a forward yield of 1.9% which might not seem much. However, this company has robust long-term prospects making it a top bet for dividend growth investors.
A Canadian utility stock
Another utility company that is eying the renewable energy space is Canada-based Algonquin Power & Utilities (NYSE: AQN). This utility player operates both regulated and non-regulated businesses and is investing heavily to develop renewable power assets.
Algonquin already has wind and solar assets and generated $1.6 billion in sales in the last 12-months. However, its forward yield of 4% and cheap valuation multiple makes it a must-have for income and value investors. Algonquin stock is trading at 15 times trailing earnings and has more than doubled dividend payouts since 2012.
Another important aspect for investors is its low payout ratio of less than 50% making its dividend sustainable and providing an opportunity for future increases.
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