One of the most difficult financial decisions seniors will make in retirement is how to balance their investment portfolio so that it offers a healthy dose of income potential while minimizing risk to their principal. Dividend stocks with 10%-plus yields might seem tempting, but in more cases than not, those yields aren’t sustainable, meaning they’re often not a great choice for retirees. Then again, raking in around 1% with a Treasury bond is equally unappealing.
The good news is retirees have ample choices when it comes to dividend stocks. On a trailing 12-month basis, better than 40% of all publicly traded stocks paid a dividend to shareholders. (Admittedly, this also includes one-time dividends that may not be recurring.) Some of the most sought-after income stocks tend to be America’s largest companies and industry leaders. This would certainly make sense given that industry leaders usually have sustainable competitive advantages that lead to healthy cash flows and growing, sustainable dividends.
However, there’s also an array of less-known dividend payers that can pack a healthy income punch for retirees. Let’s have a look at four such companies that retirees should give serious consideration to.
Nearly all retirees are familiar with tech giants like IBM, but bring up the name Iron Mountain (NYSE:IRM) and you’re liable to lose a few hairs scratching your head. Iron Mountain is a technology company that works with a host of enterprise customers across a number of sectors to provide data backup, information management, and document management services.
What makes Iron Mountain such an intriguing option is that it converted to a real estate investment trust, or REIT, in 2014, meaning that it receives preferential tax treatment on its profits in exchange for paying out 90% or more of those profits annually as dividends. Best of all, REIT payouts occasionally qualify for preferential tax treatment that lowers an investors’ cost basis, meaning some retirees could actually get to keep more of the income they receive.
Iron Mountain delivered 4% storage rental growth in 2015, has had a compounded annual growth rate of 4.4% since 2011, and looks poised to continue capitalizing on an increasingly digitized and data-filled world. The company still believes there’s a large untapped market for storage rental and document management in North America and most emerging markets, meaning its 5.3% dividend yield could be a nice addition to retirees’ portfolios.