20 dividend stocks to fund 20 years of retirement

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Clicking a link will open a new window. Once upon a time, if you were planning to retire, the traditional wisdom was the "4% rule." You withdraw 4% of your savings in the first year of retirement, followed by "pay raises" in each subsequent year to account for inflation. The idea is that, if you're invested in a mix of dividend stocks, bonds and even a few growth equities, your money should last across a 20-year retirement.

Chevron

Sector: Energy Market value: $210.2 billion Dividend yield: 4.9% Chevron () has arguably been the best positioned and most committed oil major to continue paying its dividend during these turbulent times in the energy sector. The company's net debt-to-capital ratio, which measures the portion of a company's financing that is from debt, was 13% at the end of 2019 – well below the 20% to 30% average of its peers. When oil prices cratered during the pandemic, Chevron had the borrowing capacity necessary to keep paying its dividend until the environment proved – and even snuck in a crafty all-stock acquisition of Noble Energy to capitalize on depressed prices. Management also has prioritized cost reductions and improved capital efficiency to help Chevron generate more cash during downcycles. During the second half of 2020, Chevron's breakeven, or the price of oil needed to cover the dividend and capital expenditures with operating cash flow only, fell below $50 per barrel. That's down from $55 in 2019 and the $80s not long before that. Chevron's conservative financial practices, scale and low-cost resource base have helped the firm raise its dividend for 33 consecutive years. The bottom line is that this integrated energy giant is committed and able to protect its status as a Dividend Aristocrat in almost any environment. Investors just have to be comfortable with the energy sector's high volatility.

W P Carey

Sector: Real estate Market value: $13.2 billion Dividend yield: 5.7% W P Carey () is a large, well-diversified REIT with a portfolio of "operationally-critical commercial real estate," as the company describes it. More specifically, W P Carey owns more than 1,200 industrial, warehouse, office and retail properties located primarily in the U.S. and Europe. The company's properties are leased out to approximately 350 tenants under long-term contracts, with 99% of its leases containing contractual rent increases. W P Carey's operations are also nicely diversified – nearly 40% of its revenue is generated outside of America, its top tenant represents just 3.3% of its rent, and its largest industry exposure (retail stores) is about 22% of its revenue. REITs, as a sector, are among the highest-yielding dividend stocks on the market since their business structure literally mandates that they pay out 90% of their profits as cash distributions to shareholders. But W P Carey and its 5.9% yield stick out. Better still, thanks to its aforementioned qualities, as well as its strong credit and conservative management, WPC has paid higher dividends every year since going public in 1998. It should have little trouble continuing that streak for the foreseeable future. Even throughout the pandemic, W P Carey's annualized base rent grew each quarter in 2020 and occupancy remained near a record high.

Pembina Pipeline

Sector: Energy Market value: $17.7 billion Dividend yield: 6.4% Pembina Pipeline () began paying dividends after going public in 1997 and has maintained uninterrupted monthly payouts ever since. The pipeline operator transports oil, natural gas and natural gas liquids primarily across western Canada. Energy markets are notoriously volatile, but Pembina has managed to deliver such steady payouts because of its business model, which is underpinned by long-term, fee-for-service contracts. In fact, fee-based activities accounted for roughly 94% of Pembina's EBIDTA (earnings before interest, taxes, depreciation and amortization) in 2020, with take-or-pay contracts representing the majority. Coupled with a conservative payout ratio in recent years, the firm's dividend is expected to remain well covered by fee-based distributable cash flow (DCF, an important cash metric for pipeline companies), providing a nice margin of safety. For comparison's sake, its payout represented 135% of its DCF in 2015; it's expected to be just 71%-75% this year.) The dividend is further protected by Pembina's investment-grade credit rating, focus on generating at least 75% of its cash flow from investment-grade counterparties, and self-funded organic growth profile. Pembina's financial guardrails and tollbooth-like business model should help PBA continue to produce safe dividends for years to come.

Enbridge

Sector: Energy Market value: $80.6 billion Dividend yield: 6.6% Canada's Enbridge () owns a network of transportation and storage assets connecting some of North America's most important oil- and gas-producing regions. Advances in low-cost shale drilling were expected to drive growth in the continent's energy production over the years ahead, but ENB is defensively positioned even if the energy environment remains challenging. CFRA analyst Stewart Glickman notes that ENB is "capable of self-funding both its growth capex needs as well as its dividends via operating cash flow, which leaves it in the position of not relying on external capital markets to do so." While some pipeline operators ran into trouble when their access to financing was cut off during the 2020 downturn in energy markets, Enbridge's conservative distributable cash flow payout ratio near 70%, reasonable capital spending plans, and investment-grade balance sheet kept its capital allocation plans intact. In fact, despite the tough year for most pipeline operators, management in December 2020 hiked the dividend by 3%, marking Enbridge's 26th consecutive annual increase. With a yield near 7% and plans to grow its cash flow per share by 5% to 7% over the long term, Enbridge offers a solid combination of income and growth for investors who are comfortable with the midstream industry.

Enterprise Products Partners LP

Sector: Energy Market value: $50.8 billion Distribution yield: 7.7%* Enterprise Products Partners LP (), a master limited partnership (MLP), is one of America's largest midstream energy companies. It owns and operates more than 50,000 miles of pipelines, as well as storage facilities, processing plants and export terminals across America. This MLP is connected to every major shale basin as well as many refineries, helping move natural gas liquids, crude oil and natural gas from where they are produced by upstream companies to where they are in demand. Approximately 85% of Enterprise's gross operating margin is from fee-based activities, reducing its sensitivity to volatile energy prices. The firm also boasts one of the strongest investment-grade credit ratings in its industry (BBB+) and maintains a conservative payout ratio. Its DCF in 2020 was about 160% of what it needed to cover its distribution. Ample distribution coverage has helped Enable raise its payout every year since it began making distribution in 1998. That trend seems likely to continue. Enable should "continue to benefit from its substantial asset base along the Gulf Coast as well as from projects slated to enter service over the next three years," writes Argus analyst Bill Selesky. "We expect these projects and existing assets to support future distribution growth." * Distributions are similar to dividends but are treated as tax-deferred returns of capital and require different paperwork come tax time. Brian Bollinger was long DUK, ED, NNN, ORI, PSA, SO, VZ and WPC as of this writing.
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2021 The Kiplinger Washington Editors, Inc.

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