Worry-free investing

Q: How should I search for safe dividend stocks?

A: You’re making the right move by getting back into stocks. Although retirees should have less exposure to equities than say, a 35-year-old, stocks are an important component of a wellrounded portfolio for investors of any age.

This is especially true for dividend stocks, which can provide retirees with growing income streams, as well as capital appreciation to help keep up with inflation. So how do you find the right kind of dividend stocks for retirees?

First, narrow your search to companies with dividend yields that are at least the market average — let’s say 2% or higher. Anything lower and it’s tough to call it an “income stock.”

Next, look for companies with wellestablished track records of dividend increase and no dividend cuts. This doesn’t guarantee they will keep following that pattern of behavior, but it makes it more likely. The S&P High Yield Dividend Aristocrats index, which contains more than 100 dividend stocks that have increased their payouts for at least 20 consecutive years, is a good place to start your search.

AT&T is one of my favorite examples. The telecom giant yields 5.1% and has increased its annual payout for 32 consecutive years, thanks to its steady, utility-like income stream. Net-lease real estate investment trust National Retail Properties, with its 4.4% yield and 28year streak, is another good option.

Matthew Frankel owns shares of AT&T. The Motley Fool has no position in any of the stocks mentioned.