The stock market by its precise nature is volatile, with high rewards for some and serious risk for others. However, when building a retirement portfolio to build a steady yield over the years, many will try and fail to choose the correct stocks to follow for a secure future. No one can predict the future, but there are better ways to prepare than others. Certain safe income stocks allow for high yield and little risk.
Out of the following three dividend stocks, two belong in the energy sector and one to the consumer defensive sector. Energy stocks are Sunoco Logistics Partners L.P. (NYSE:SXL) and Exxon Mobil Corporation (NYSE:XOM), while General Mills, Inc. (NYSE:GIS) is from the consumer defensive sector. All three companies have an established history of paying increasing dividends with steady price appreciation.
Sunoco Logistics Dividend Profile
Is the dividend safe?
The partnership distributions are fully backed by its solid financial situation and a smart investment strategy. Its strategy for future growth involves increased asset utilization, continued pursuit of prospects occurring due to market dislocations, and expansion of its platform through asset acquisitions and organic expansions.
With this business plan, the partnership continues to generate solid financial results. Recently, the partnership announced its first quarter results with an adjusted EBITDA of $236 million – an increase of $67 million over the past quarter. At the end of the first quarter, the partnership generated a record distributable cash flow of $195 million.
Along with solid financial performance, it is aggressively working on future growth investment strategy. During the first quarter, it acquired the Marcus Hook facility from Sunoco Logistics Partners L.P. (NYSE:SXL) for $60 million. I believe this acquisition demonstrates its continued dedication to chasing opportunistic growth in natural gas liquids (NGLs).
ExxonMobil Dividend Profile
Exxon Mobil Corporation (NYSE:XOM) has a long history of dividend payments. Recently, Exxon Mobil Corporation (NYSE:XOM) declared a quarterly dividend of $0.63 cents per share. This is the company’s 31st consecutive dividend increase. The company has increased its dividends by 57.5% in the past five years.
Is the dividend safe?
Exxon Mobil Corporation (NYSE:XOM) is currently having short-term problems with production and reserves. There has been a 3.5% decrease in oil equivalent production, in the first quarter. The depressed economy has been blamed for the decline in production; however, strong margins have enabled Exxon Mobil Corporation (NYSE:XOM) to enlarge EPS by 6% relative to the last year.
Exxon’s cash flows also convey a positive impression of the company to dividend investors. Its operating and free cash flows were $50.5 billion and $16.6 billion respectively in the last 12 months. There has been a decline in free cash flow mainly due to high capital expenditure on investments in growth opportunities. In the past 12 months, its capital expenditures stand at $33.9 billion, the highest in the company’s history. Still, Exxon’s free cash flow adequately covers its dividends. I believe its dividends are safe as long as its free cash flows provide coverage to dividends.
General Mills Dividend Profile
General Mills, Inc. (NYSE:GIS) is one of the top companies known for consistently increasing dividends. It has sustained its dividends for more than a century. Presently, General Mills offers a quarterly dividend of $0.38 per share with a steady price appreciation.
Is the dividend safe?
General Mills’ returns are fully backed by its business model and smart investment strategy. At present, General Mills is operating in three business segments which are generating solid earnings for the company. Recently, General Mills announced its third-quarter results with consolidated revenue growth of 7.5%. This solid growth lets it convert sales into earnings at high margins. Additionally, General Mills is also taking cost-cutting initiatives. which further enhance its margins.
The strong profitability of General Mills significantly impacts its cash flows. Its operating cash flow increases year after year. In the past 12 months, the operating cash flow grew by a massive 29% to $2.15 billion. General Mills is a well-organized and stable company working in the consumer defensive sector. It does not have to spend massive amounts for acquisitions.
The company makes investments in new markets and future growth opportunities only to gain or sustain its market share. Free cash flows are, therefore, enough to cover its dividends, which is a sign of their sustainability. At the end of the first nine months, General Mills’ free cash flows stand at $1.7 billion, while dividend payments accounted for only $652 million.
Final Notes
Sunoco Logistics Partners L.P. (NYSE:SXL) is an attractive investment for many reasons. Being organized as an master limited partnership, it gains favorable tax advantages. With an attractive dividend yield, it makes big distribution hikes with a history of continually increasing distribution. On the other hand, ExxonMobil is investing heavily to improve its reserves and production. Exxon is seeking to improve production by 23% by the end of 2017. Despite, its high capital expenditure, free cash flows cover its dividends payments. In the case of General Mills, it is a buy for the long haul.
The article Three Stocks for a Safe Retirement Portfolio originally appeared on Fool.com and is written by siraj sarwar.
siraj is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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