Nearing Retirement? These Stocks Will Pay You for Life

When you are building a nest egg, growing your portfolio is top of mind. But as you get closer to retirement, you’ll start thinking about living off your savings.

That shifts your focus to capital preservation and dividends. If you’re making that shift, then you’ll want to look at Texas Instruments (TXN -0.56%), Realty Income (O 0.46%), and Exxon Mobil (XOM -1.29%), a trio of dividend stocks that can create a lifetime of passive income.

1. Texas Instruments: Relatively cheap

Texas Instruments is one of the largest chipmakers, but it doesn’t actually do anything fancy. What it makes are largely very simple microchips that help transform real-world inputs (for example, pushing a button) into digital signals.

The types of chips it produces go into just about everything digital. The company has over 80,000 products and over 100,000 customers across the globe. It has manufacturing facilities in Asia, Europe, and in the Americas. If you believe the world is going to get more and more digital, Texas Instruments’ products are going to see more and more demand.

The company has an investment-grade balance sheet, and it has increased its dividend annually for around two decades. Over the past 10 years, the average annual increase was a huge 20%! Right now, the chip sector is in a down cycle, which has pushed Texas Instruments’ yield toward historically high levels of around 2.8%. That suggests that the shares are cheap today.

It should muddle through the industry downturn just fine. But the really interesting thing is that management has plans to spend $3.5 billion a year between 2022 and 2025 on new capacity, as it looks to exit the downturn as a better company than when it entered the industry pullback.

2. Realty Income: Slow and steady

Realty Income is a net-lease real estate investment trust (REIT). That means that it owns single-tenant properties and, more importantly, its tenants are responsible for most of the property-level operating costs of the assets they occupy. Any single asset has a high risk, with just one tenant, but with a large enough portfolio, the risk of this approach is very low. Realty Income is the largest public net-lease REIT, with a portfolio of over 11,700 properties.​​

The company is, by design, pretty boring. For example, the vast majority of its properties (around 80%) are in the retail sector, where buildings are fairly similar and easy to buy and sell. It has an investment-grade balance sheet, ensuring a sound financial foundation.

And it has increased its monthly dividend each year for 27 consecutive years. The annualized dividend increases won’t excite you (they will usually fall in the mid to low single digits), but when you are retired, slow and steady can be a good thing. 

The problem is that a lot of investors recognize the value of having a stock like Realty Income in a broadly diversified portfolio, so the shares are rarely cheap. Today’s 4.6% dividend yield is probably about middle of the road over the past decade, so it suggests a fair entry price, but not a good one. Sometimes, though, it’s worth paying full fare for a great dividend stock.

3. Exxon Mobil: Ready for the hit

Exxon Mobil is probably not a stock that most investors should buy today unless you are specifically looking for an energy stock. The highly cyclical energy industry is, broadly speaking, in an upturn, and ExxonMobil is posting incredibly strong financial results.

Wall Street has pushed the shares higher, and the dividend yield has declined to a fairly modest 3.2%. There’s a very real risk that oil prices fall and take Exxon Mobil’s stock price along with them (at which point the stock will likely be a more broadly compelling opportunity). 

But even if that happens, Exxon Mobil has a rock-solid balance sheet and a history of using leverage to support its business and its dividend during industry downturns. In fact, the company has increased its dividend annually for four decades in a row despite the highly cyclical nature of the energy sector. When oil prices fall again (and they eventually will, if history is any guide), Exxon Mobil is a name you might want to jump on.

If you’re worried about the long-term performance of this stock given the push toward clean energy, don’t be too upset. It has a $450 billion market cap and routinely spends $20 billion or more on capital investments. It has the size and financial wherewithal to shift gears and invest in (or just acquire a company in) the clean-energy space.

Right now, though, the world is still in dire need of oil and natural gas, and Exxon Mobil plans to be there to help.

Big, strong, and able

Texas Instruments, Realty Income, and Exxon Mobil are all large, financially strong, and well-positioned within the markets they serve. That’s the type of company you want if you are looking to own reliable dividend stocks.

Texas Instruments’ yield is modest on an absolute basis but historically high. It looks attractive right now. Realty Income’s yield suggests it is fairly priced, and if you don’t mind paying full fare for great dividend stocks, it could be a solid addition. Exxon Mobil is probably best left on the wish list for the moment unless you are dead set on buying an energy stock today. But if the energy sector pulls back, you’ll want to take a closer look.