One of the best ways for retirees to create a regular income out of lifetime savings remains investing in dividend stocks. Reliable dividend stocks generally offer higher yields than bonds and give you the ability to see your income rise through increasing dividend payouts, as well as grow as a result of capital appreciation. Bonds, CDs, and other traditional fixed-income products can’t do that.

Here, we have selected three stocks that are ideal for that purpose, because they pay growing dividends.

1. Home Depot

Home Depot Inc (NYSE:HD) is one of those retailers that are best-positioned to continue sending dividend cheques to retirees. The reason: the management figured out early on how to thrive in this challenging environment where e-commerce disruptors, such as Amazon.com Inc (NASDAQ:AMZN), are sending many retailers out of business.

With 90% of Americans already living within 10 miles of a Home Depot store, rather than opening new locations, the company instead focused on upgrading its existing store base with better technology and e-commerce fulfilment capabilities.

Home Depot price chart
Home Depot price chart

Another important move that helped Home Depot thrive in the relatively weak housing markets of the past decade is its diversification in areas that are less dependant on the strength of the housing market.

As well, this retailer is a reliable dividend payer. Its quarterly dividend has expanded 380% over the past decade and, with a healthy payout ratio of 42%, it has much more room to grow them. With an annual dividend yield of 2.41%, the company pays $1.36 a share quarterly payout.

That payout got a 32% boost earlier this year when HD also announced a new $15 billion share repurchase authorization and stated that it plans to buy $5 billion worth of shares in 2019. The shares have gained 14% in the past 12 months, closing yesterday at $226.67.

2. Merck & Co.

Health-care stocks are considered reliable income producers. Just like retailers, utilities and garbage collectors, health providers offer services that we can’t afford to put off in a recession, and economic swings don’t typically curb the roll-out of new drugs and devices.

Stocks like Merck & Company Inc (NYSE:MRK) are well positioned to not only beat the market in any downturn, but also provide good sustainable returns.

Merck, a global healthcare provider, plans to invest $16 billion in new capital projects through 2022. It also boosted its dividend last year by 15% to $2.2 a share annually.

Merck & Co. price chart
Merck & Co. price chart

The company is benefiting from its top-selling cancer drug Keytruda. In the second-quarter, Merck beat Wall Street’s sales estimates by almost a billion dollars in sales, and raised its sales and earnings forecast as Keytruda is on pace to become a $10-billion-a-year product.

With strong earnings momentum, a growing dividend and buybacks, we believe Merck is a good long-term bet for buy-and-hold retirees even after its strong gains of 16.5% during the past 12 months. The stock closed yesterday's session at $83.29.

3. BCE Inc.

Telecom utilities have all those traits that make a stock perfect for retirees. In this space, we like Canada’s largest telecom operator BCE Inc . (NYSE:BCE) more than its U.S. counterparts. The reason is that the company operates in an oligopoly in Canada, where three big players make most of the revenues.

BCE, through its diversified service offerings, including wireless, home internet, and media operations, has shown sustained growth in subscribers. The operator has made the right bets in the past five years, positioning the company to produce better returns for shareholders.

Among the measures that will fuel future growth is its investment, worth billions of dollars, in a fiber-optic network to support faster internet speeds and prepare the utility to offer 5G — the next generation of wireless network technology.

BCE Inc. price chart
BCE Inc. price chart

BCE has long maintained a policy of increasing its dividend by 5% annually and has used a series of acquisitions to partly fuel the cash flow growth necessary to keep boosting the payout.

As per the company’s dividend policy, the company distributes between 65% and 75% of its free cash flow in payouts. In line with this policy, BCE has more than doubled its annual payout since the fourth quarter of 2008: the payout is now at $2.38 per share annually, translating into dividend yield of about 5%. The shares have risen almost 21% in the past year, ending yesterday at $48.45.

Bottom Line

Receiving regular dividend cheques and protecting your capital should be the two main objectives for those in retirement. Solid dividend stocks, offering steady returns through their stable income, are what could make that key difference in your retirement portfolio.

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