You probably don’t need the reminder, but it’s been a trying year for Wall Street and investors. Since each of the three major US stock indexes hit their all-time highs between mid-November 2021 and the first week of January 2022, they’ve fallen as much as 22% to 34% from their respective peaks. In other words, they’re all officially in a bear market.
The unpredictability and velocity of downside moves that accompany bear markets can often make investors question whether they want to stick around. This can be especially hard for retirees who have less tolerance for risking their principal investments.
But there’s good news for aged investors: Every bear market throughout history has proved to be a buying opportunity.
It’s also a fantastic time to put your money to work in dividend stocks. Since most income stocks are profitable and time-tested, there’s minimal worry about their survival during relatively short-lived bear markets. And it certainly doesn’t hurt that dividend stocks have a history of handily outperforming their peers that don’t offer payouts over long periods.
What follows are three of the safest dividend stocks retired can buy right now to continue growing their wealth.
Johnson & Johnson: 2.8% yield
The first exceptionally safe income stock retirees can confidently buy amid bear market volatility is healthcare-giant Johnson & Johnson (JNJ -0.31%). In April, J&J, as Johnson & Johnson is more commonly known, increased its payout for a 60th consecutive year. Only a handful of publicly traded companies offer a longer streak of consecutive base annual-payout increases.
The great thing about healthcare stocks is their defensive nature. No matter how poorly the stock market or US economy performs, there will always be demand for prescription drugs, medical devices, and healthcare services. This provides a steady and predictable level of cash flow for a healthcare behemoth like J&J.
On a more company-specific basis, Johnson & Johnson benefits from its operating segments perfectly complementing each other. For example, J&J has gradually generated more of its revenue from pharmaceuticals over the years.
Brand-name drugs can generate juicy margins but have finite periods of sales exclusivity. To counter these eventual patent losses, J&J can lean on its leading medical-device segment, which is perfectly positioned to take advantage of an aging global population and improved access to preventative care.
If you need one more reason to trust J&J, consider this: It’s one of only two publicly traded stocks listed on a major US exchange to have a AAA credit rating from Standard & Poor’s (S&P), a division of S&P Global. That’s a grade higher than the US government’s AA rating. In short, S&P has more confidence Johnson & Johnson will make good on its debts than it does of the US government doing the same.
York Water: 2% yield
Another safe dividend stock retirees can add to their portfolios right now is little-known water utility York Water (YORW -3.67%). When I say “little-known,” I mean it. York services just 51 municipalities in three counties in South-Central Pennsylvania.
If you think healthcare stocks are defensive, turn it up a notch when talking about utility providers. If you own or rent a home, there’s a really good chance you need water and wastewater services. In addition, most utilities have monopolies or duopolies in the territories they serve, which leads to highly predictable cash flow since residents have few or no choices as to what company provides their service.
The best aspect of York Water’s operating model is that it’s a regulated utility, which means it needs permission from the Pennsylvania Public Utility Commission to increase rates on its customers. While this might sound like a hassle, it’s actually great news because it ensures York avoids any uncertainties tied to pricing volatility. This predictability of cash flow allows the company to make acquisitions and set aside capital for infrastructure improvements without adversely affecting profits or its dividend.
Speaking of dividends, you might be weighting York’s 2% yield and wonder why it’s even on this list. The answer is simple: No publicly traded company has been paying a consecutive dividend for a longer period. According to the company, it’s been making consecutive dividend payments to its shareholders since James Madison was president in 1816. There isn’t a more rock-solid payout history than York Water.
Walgreens Boots Alliance: 5.9% yield
Pharmacy chain Walgreens Boots Alliance (WBA -0.69%) is a third income stock retiree can comfortably buy right now. Walgreens has increased its base annual payout in each of the past 47 years and is working on 89 consecutive years of dividend payments. Its 5.9% yield is the high-water mark on this list.
Though healthcare stocks are defensive, Walgreens found a bit of a loophole to this thesis during the COVID-19 pandemic. Since its stores are relying on foot traffic, initial lockdowns hurt its business. But that’s in the rearview mirror now. With Walgreens decisively profitable and pushing forward with a multipoint turnaround plan, it makes for a genius buy at depressed levels.
While cost-cutting is part of the plan — Walgreens is a full year ahead of schedule in reducing its annual spending by more than $2 billion — what’s far more intriguing is where Walgreens is spending money. For instance, the company has placed an emphasis on building up its online sales. Even though its brick-and-mortar stores will remain its core source of sales, the convenience provided by online sales and drive-thru pickup should lift its organic growth rate.
Furthermore, Walgreens and VillageMD are working together to open as many as 1,000 co-located, full-service health clinics in Walgreens’ stores by the end of 2027. Being physician-staffed differentiates these clinics from the competition. Most importantly, it provides a catalyst to drive repeat visits and create loyal customers.
At a forward-year price-to-earnings ratio of less than 7, Walgreens Boots Alliance’s stock looks to have an incredibly safe floor to go along with its rock-solid payout.