Retirees are searching the markets for high yield dividend stocks with safety. Preservation of capital is a primary concern for many retirees. The safety factor, in quantitative terms, is clearly outlined in the company's balance sheet. A debt laden stock is primarily owned by the bond holders. Ideally a company should have a manageable level of debt versus cash on hand. Secondly the income statement should clearly display free cash flow exceeding the dividend payout. Retirees need income and dividend growth. I will highlight 5 stocks which display the characteristics of dividend stocks appropriate for retirees.
1. Lockheed Martin Corporation (LMT)
Lockheed Martin is taking aggressive steps to limit the downside risk due to U.S. military budgetary cuts. Lockheed Martin increased their earnings from continuing operations by 20%.
Lockheed Martin has bought back common shares. The 2007 common shares outstanding was 409 million. This has been reduced by to 2011's 323 million shares.
The company actively increases the dividend per share. This allows retirees the benefit of an increasing annual dividend payout. This is a desirable attribute to offset the inflation impacts upon daily expenses.
Balance Sheet Concerns
The high debt level should be monitored carefully. The long term debt increased by 28.71% year over year. This represents an 80% plus basis of the capital structure.
Growth Areas
Lockheed Martin continues to move into three segments: 1) Alternative and Renewable Energy, 2) Energy Management and Storage, and 3) Health Solutions & Life Sciences.
2. International Business Machines Corporation (IBM)
IBM's latest quarter revenue growth was stagnant from the year over year comparison.
IBM's 2007 share count was 1,385 million shares. This has been reduced via share buybacks. The 2011 ending share count was 1,163 million shares. These share buybacks have a significant impact upon increasing earnings per share.
IBM has changed dramatically over the years. Currently about 40% of revenues is derived from IBM's Global Technology Services. IBM continues to enter new markets and offer new products and services.
As the world becomes increasingly reliant upon technology, the company is moving into each sector. Over 60% of 2011's revenues were from overseas.
The 2011 dividend was $2.90 per share. This was a 16% increase from 2010's $2.50 dividend payout. IBM offers a strong share buyback plan and a focus upon returning income in the form of dividends.
3. McDonald's Corp. (MCD)
McDonald's has a profitable strategy of increasing its annual dividend, actively buying back shares, and achieving a 30% plus return on shareholder equity.
McDonald's revenue, for the 2012 1st quarter, grew 7.1% year over year. The 2012 revenue was $6.55 billion compared to 2011 revenue of $6.11 billion.
McDonald's currently yields 3.1%. 2012 earnings per share should approach $6.00 per share. This would price the equity at a 15x price to earnings multiple. In a tough economy, families can still afford time to go to McDonald's.
4. The Clorox Company (CLX)
Clorox has 4 reportable segments: 1) cleaning, 2) household, 3) lifestyle, and 4) international. The company has significant brand name recognition including Clorox-bleach, Pine-Sol, and Formula 409.
Innovate Products
Infection Control has growth potential. Aplicare's products are sold to hospitals and end users to prevent skin infections. "Brita-On-The-Go" is a new product with terrific potential. The water bottle device filters tap water on the go.
The stock yields 3.7% and is trading at approximately a 16x price to earnings multiple.
5. Abbott Laboratories (ABT)
Abbott Laboratories has 4 reportable segments: 1) Pharmaceutical Products, 2) Diagnostic Products, 3) Nutritional Products, and 4) Vascular Products. Abbott is trading at a 12x price to earnings multiple. The 3.3% yield is significant based upon Abbott's blue chip stature.
The company plans to separate into two companies by the end of 2012. Abbott Laboratories is spinning its research based pharmaceutical company. The name will be AbbVie. Abbott will retain the diversified medical products.
Action
I have never favored a cookie cutter approach for individual investors. Every investor is unique with distinct investment goals and income needs. Retirees, if they are not hedging their portfolio, need to ensure they own companies with an increasing dividend and share buyback plan in place. A major point is the dividend is a management focus. The company should ideally increase the dividends annually.
