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Dividend stocks are among the most bankable investment options for retirees to supplement their income and grow their nest eggs. However, not all dividend stocks belong in a retiree's portfolio. I'd look for companies that can offer stable, preferably even growing dividends year after year that are backed by strong underlying growth potential in earnings and cash flow.
Our Motley Fool contributors believe ShotSpotter (NASDAQ: SSTI), Dominion Energy (NYSE: D), and Johnson & Johnson (NYSE: JNJ) are three such dividend stocks ideal for retirees. Here's why.
Off with a bang
Rich Duprey (ShotSpotter): Gunshot detection specialist ShotSpotter has seen some wild swings in its stock price, swinging from a low of $18.50 last year to over $66 a share last September, only to fall once more to $26 a stub before climbing higher again. Today it trades at $39 per share, some 40% below its highs, but 68% above its low point.
Part of the reason for the volatility is the fact that it's a small-cap stock, and the hills and valleys it hit had more to do with the general stock market than its business. It has been growing sales as more cities install its sensors, expanding the number of miles covered. Revenue surged 49% in the fourth quarter, and the company added 24 more net miles of coverage without losing any miles, which brought the total to 643 miles.
Image source: Getty Images.
The technology used allows ShotSpotter's sensors to "hear" a gunshot, determine whether high-capacity weapons are being used and if there are multiple shooters, then transmit a report to law enforcement within 45 seconds.
ShotSpotter has near-monopoly status in wide-area detection capabilities, and with fewer than a dozen cities in its portfolio of coverage, there's a lot of room for growth. Much as Axon Enterprise has a lock on major city contracts for stun-gun and body-camera sales, ShotSpotter can build on the gains it's already made and see its stock grow further even though it has already more than doubled in value.
A safe dividend growth stock
Neha Chamaria (Dominion Energy): A utility is often a safe place for retirees to park money for one simple reason: It's a highly regulated business that ensures stability in revenue and cash flow, which can then be passed on to shareholders as regular, even growing, dividends. Consider Dominion Energy, for example. The stock yields a solid 4.4% currently, and management is committed to growing its dividend in the years to come.
Dominion Energy is one of the largest electricity and natural gas utilities in the U.S., with a customer base of almost 7.5 million and nearly 90% regulated operations. For a regulated utility, while the prices are set by the state public utility commissions, the company gets exclusive selling rights in the regions in which it operates, effectively making it a monopoly. A regulated market works in favor of shareholders in two ways: The utility generates predictable revenue and profit and allocates capital prudently to ensure its investment and spending generates a set rate of return. Eventually, that translates into strong returns for shareholders in the long run, both as stock price appreciation and dividends.