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3 Dividend Stocks Ideal for Retirees

Steve Symington, Leo Sun, and Reuben Gregg Brewer, The Motley Fool

Investing in the stock market might seem like a risky proposition for retirees, but it doesn't have to be. In fact, with the help of dividends, stocks can offer a perfect way to simultaneously grow your nest egg and receive some income along the way.

But not every dividend stock is well suited for a retirement portfolio. So we asked three top Motley Fool contributors to each discuss a dividend stock they believe is ideal for retirees. Read on to learn why they like Universal Display (NASDAQ: OLED) , ExxonMobil (NYSE: XOM) , and Target (NYSE: TGT) .

Man in suit stacking successively taller stacks of coins

IMAGE SOURCE: GETTY IMAGES.

A small, fast-growing dividend

Steve Symington (Universal Display): Universal Display first initiated a tiny $0.03-per-share dividend in early 2017, good for an annual yield of around 0.14% at the time. But I singled out the stock as a promising long-term play because management called the minuscule payout "a good place to start," indicating it had room to grow along with the organic LED (OLED) market.

Fast-forward to now, and though Universal Display's share price has nearly doubled since then, the stock yields around 0.25% annually as the company has increased its quarterly payout to $0.10 per share. That figure was most recently helped by a $0.04-per-share boost along with Universal Display's fourth-quarter 2018 report last month.

For any investors concerned they may have missed this boat, however, don't fret. The stock is still trading around 25% below its all-time high from early last year, as it's yet to fully recover from a temporary lull in OLED demand while Universal Display's customers poured tens of billions of dollars into building their respective OLED manufacturing capabilities. With a plethora of promising new devices featuring novel OLED technology about to go mainstream, and with high-potential sources of incremental growth like the OLED lighting industry still in their infancy, I think the stock is still a solid bet for any investor looking for an attractive combination of share-price appreciation and capital returns.

Collect fat dividend checks from this energy giant

Reuben Gregg Brewer (ExxonMobil): Low leverage, a hefty yield, and more than a three-decade history of increasing dividends annually -- those are some of the Exxon headlines that should grab the attention of dividend investors looking to generate income in retirement. While the $340 billion-market-cap giant operates in the highly cyclical energy industry, that hasn't stopped the company from rewarding dividend investors while allowing them to sleep well at night.

That said, Exxon's stock appears to be an opportunity today for investors who can think long term. The 4% yield is near the highest level in the past 20 years. And the company's price to tangible book value is near a 30-year low. The big reasons for those numbers are falling production and a move from leading the industry in return on capital employed, or ROCE, to being simply in the middle of the pack. The company has plans to fix both issues and is already showing good progress.

XOM Dividend Yield (TTM) Chart

XOM Dividend Yield (TTM) data by YCharts

Although production fell for the third consecutive year in 2018, it was sequentially higher in the third and fourth quarters of 2018 as just one of several key growth projects started to ramp up. Moreover, the company recently announced that it replaced more than 300% of the oil it drilled in 2018, notably increasing its reserves and highlighting the success it's having at its other growth projects. And ROCE has begun to improve as well, with a goal of getting into the mid- to high teens by 2025 by focusing on industry-leading investment opportunities .

Don't let the weak performance of Exxon's stock fool you. This conservative giant's business is starting to turn in the right direction again.

Over half a century of dividend increases

Leo Sun (Target): Target pays a forward dividend yield of 3.3%, and it's raised that payout annually for over five decades. It spent 45% of its earnings and 54% of its free cash flow on that dividend over the past 12 months, which leaves plenty of room for future increases.

The bears often warn that Target is exposed to the growth of Amazon.com (NASDAQ: AMZN) and its expansion into the brick-and-mortar market with its acquisition of Whole Foods.

However, Target allayed those fears by improving its website and app, launching its Restock next-day essentials delivery services, and offering Drive-Up pickups, free two-day shipping options, and same-day deliveries with Shipt. Like Walmart (NYSE: WMT) , Target leveraged its scale to turn its brick-and-mortar stores into fulfillment centers to challenge Amazon. It also recently launched Target+, a curated marketplace for third-party sellers.

As a result, Target's digital comps consistently rose by double digits, with 31% annual growth last quarter, and it churned out more than 5% comps growth over the past three quarters. In fiscal 2019, it expects its comps to rise by the low to mid-single digits. Analysts expect total revenue to rise 4%.

A higher number of digital fulfillments is putting some pressure on Target's gross margin, but analysts still expect tighter spending and aggressive stock buybacks to lift adjusted EPS 8% this year. That's a solid growth rate for a stock that trades at just 12 times forward earnings. Therefore, retirees looking for a rock-solid stock with a reliable yield should take a closer look at this resilient retailer.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Amazon. Reuben Gregg Brewer owns shares of ExxonMobil. Steve Symington owns shares of Universal Display. The Motley Fool owns shares of and recommends Amazon and Universal Display. The Motley Fool has a disclosure policy .