I’ve been loading my retirement portfolio with high-quality dividend-paying stocks. While I love the passive income they produce, that’s not the primary driver. I mainly focus on buying dividend stocks because they’ve outperformed non-payers 2-to-1 over the longer term with less volatility. Because of that, I believe they’ll put me in a better position to reach my retirement goals.
I buy dividend stocks all the time. I recently purchased some more shares of Chevron (NYSE: CVX), T. Rowe Price (NASDAQ: TROW), and Mid-America Apartment Communities (NYSE: MAA) in my retirement account. Here’s why I think they’re high-quality dividend stocks to hold with retirement in mind.
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Chevron has a terrific record of paying dividends. The oil giant has increased its payout annually for more than 35 straight years and gave investors an 8% raise last February. It has delivered a higher dividend growth rate over the last five years than the S&P 500 (SNPINDEX: ^GSPC) and has increased its payout at more than double the pace of its nearest peer in the oil patch.
The oil company currently offers a dividend yield of more than 4%. That’s over three times higher than the S&P 500’s dividend yield (1.2%).
Chevron should have plenty of fuel to continue increasing its dividend in the future. The oil giant has been investing heavily in growing its best assets, which will help increase its highest-margin oil and gas production. This strategy has the company on track to grow its output at a more than 3% compound annual rate by 2027. That should fuel more than 10% compound annual free cash flow growth during that period, assuming oil averages $60 a barrel.
Thanks to its strong balance sheet, Chevron can fund its capital program, a growing dividend, and share repurchases at the low end of its $10 billion-$20 billion annual target range even if crude oil averages $50 a barrel over the next three years (it’s currently in the mid-$70s).
T. Rowe Price delivered its 38th straight year of dividend growth in 2024. The large global asset management company generates fairly stable cash flow, supported by asset management fees.
The investment manager’s fee income rises as its assets under management (AUM) grows. AUM has grown 21.1% over the past year to over $1.6 trillion. That has helped drive an 18.4% increase in its adjusted earnings per share.
Notable growth drivers include its actively managed exchange-traded fund (ETF) franchise and the launch of innovative retirement solutions. Those catalysts should enable the company to continue growing its AUM and income in the future.
As T. Rowe Price’s income grows, it should enable the company to continue increasing its high-yielding dividend (currently over 4%). It also has a strong financial profile, including almost $3.2 billion of cash and equivalents on its balance sheet. That’s enough to cover its annual dividend outlay ($1.1 billion) for almost three years.
Mid-America Apartment Communities has delivered 30 years of dividend stability and growth. The real estate investment trust (REIT) has never suspended or reduced its payout. While it hasn’t raised the dividend every single year, it has increased its payment for the past 15 years in a row, including by 3.1% last December. Its dividend currently yields around 4%.
The apartment landlord collects fairly steady rental income. It focuses on strong housing markets across the Sun Belt region, which are benefiting from jobs and population growth. That keeps occupancy levels high, allowing the REIT to steadily increase rental rates. While it has faced some headwinds in recent years from an increase in newly built apartments in its markets, that will fade in 2025 as completions slow, paving the way for a new multiyear upcycle where demand should outpace supply.
Mid-America also invests money to renovate older apartments, build new apartment communities, and acquire operating properties. The REIT has a very strong balance sheet, giving it the financial flexibility to invest in expanding its apartment portfolio. It’s investing nearly $1 billion across several development projects it expects to complete over the next few years. The company’s growing portfolio and rising rents should enable it to continue increasing its dividend.
Chevron, T. Rowe Price, and Mid-America Apartment Communities are ideal fits for my retirement account. They pay higher-yielding dividends that should continue growing in the future. Because of that, they should provide me with attractive total returns with less volatility, which is exactly what I’m seeking to steadily grow the value of my retirement account.
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Matt DiLallo has positions in Chevron, Mid-America Apartment Communities, and T. Rowe Price Group. The Motley Fool has positions in and recommends Chevron and Mid-America Apartment Communities. The Motley Fool recommends T. Rowe Price Group. The Motley Fool has a disclosure policy.
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