Dividend stocks can be a great investment for those who are approaching retirement. These stocks tend to be less volatile than growth shares, and they also offer two potential sources of return.
Here, I’m going to highlight three lower-risk dividend stocks that I believe could be well suited to those who are 10 years away from retirement. In my view, these shares have the potential to deliver an attractive mix of growth and income over the next decade.
Diageo
First up is Diageo (LSE: DGE). It’s an alcoholic beverages company that owns some of the world’s most famous spirits brands including Johnnie Walker, Tanquarey, and Smirnoff.
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Diageo has all the right ingredients to be a winning long-term investment, to my mind.
This is a company that is well placed to benefit from the rise in wealth across the world’s emerging markets in the years ahead (it generates over 40% of its revenues from these markets today).
And it’s a reliable dividend payer with a great track record when it comes to increasing its payout (20+ years of consecutive increases). At present, the yield is about 2.6%.
Currently, Diageo shares are near their 52-week lows. I think this is a great entry point.
There are some risks here in the short term (the global economy, China, etc).
But I believe that over the next 10 years, the stock will provide solid returns.
Smith & Nephew
Another stock I think could be well suited to those approaching retirement is Smith & Nephew (LSE: SN.). It’s a healthcare company that specialises in joint replacement technology.
I see this company as a great play on the world’s ageing population. By 2030, one in six people worldwide will be over 60. That translates to a lot of joint replacement surgery.
I also think it could be a good play on robotic surgery. In recent years, Smith & Nephew has launched a number of interesting products in the robotics space.
This is another company with an amazing dividend track record. Believe it or not, it has paid a dividend every year since 1937.
With the stock currently trading on a forward-looking P/E ratio of 14.5 and offering a yield of around 2.8%, I think there’s potential for attractive long-term returns going forward.
That said, inflation, and weak business conditions in China, are some key risks.
BAE Systems
Finally, I think BAE Systems (LSE:BA.) could be another good dividend stock to consider. It’s a leading defence and security company.
Looking out over the next decade, the backdrop for BAE is likely to be supportive, to my mind.
With so much geopolitical tension globally (Russia/Ukraine, China/Taiwan, etc), government spending on defence is likely to remain high.
Some analysts even think we could be at the start of a multi-year defence spending boom.
Analysts at JP Morgan, for example, recently said that they believe that Europe could be at the beginning of a five-to-10 year defence spending upcycle.
BAE Systems shares have had a good run over the last three years. So there’s always the risk of a pullback.
Taking a long-term view however, I’m optimistic that the shares – which currently trade on a forward-looking P/E ratio of 15 and offer a yield of around 3% – can deliver solid returns from here.
