3 Stocks to Supplement Your Social Security Checks

Most retirees depend on Social Security to cover a significant portion of their bills and expenses, and for about a quarter of them, the program provides 90% or more of their income.

But your benefit check alone won’t be enough to cover what you would think of as a comfortable retirement. The average 65-year-old receives just over $1,300 per month from Social Security. When you add up the costs of your basic needs, travel, dining out occasionally, and the higher healthcare expenses that come with age, odds are, you’re going to need sources of income to supplement that. This is why you should be investing — whether through a tax-advantaged retirement account like a 401(k), Traditional IRA, or Roth IRA, or via a standard brokerage account.

If you’re intending to have the sort of retirement lifestyle that you can’t enjoy on government benefits alone, one smart strategy is to identify and hold investments that will deliver a combination of income, growth, and stability. These three stocks tick all of those boxes.

Retiree sitting on top of a large pile of cash

Image source: Getty Images

MPLX keeps the oil and dividends flowing

MPLX (NYSE: MPLX) is a master limited partnership (MLP) with energy infrastructure, logistics, and distribution operations. This puts it in the midstream category of the energy sector, meaning that it’s primarily involved with the transportation and storage of crude oil, natural gas, and refined products.

Midstream companies typically have the most predictable cash flows in the energy sector because their revenue is not dependent on crude oil prices nor on spreads on refined products. Instead, their performance is primarily based on the volume of material transported.

Low energy prices and the pandemic wrought havoc on the energy sector last year, and MLPX wasn’t immune to the chaos. After prices tanked, many energy extraction companies took production facilities offline because it was no longer profitable to keep them operational. As a result, the midstream transported lower volumes of hydrocarbons. However, energy prices have slowly crept back up, and the unfolding economic recovery should create more demand for fuel and refined products.

In the fourth quarter, MPLX reported an 8% year-over-year decline in pipeline throughput volume and 3% lower revenue. For a distressed industry, those aren’t particularly troubling results. The company even delivered improved adjusted EBITDA and distributable cash flow, which are important profit measurements for MLPs.

At current share prices, MPLX’s dividend yields an eye-popping 10.9%, as stock prices across the energy sector remain depressed. The most recent quarterly distribution coverage ratio was 1.58; that indicates that the company is producing more than enough cash to sustain its dividend. The energy sector isn’t out of the woods yet, but if MPLX can maintain its current performance, this stock should be a fantastic income source with the potential to appreciate significantly.

DTE Energy delivers stability

Utility companies are popular holdings in retirees’ income-focused investment portfolios. They are recession-resistant, because people generally do their best to keep the lights and water on even when times are tough. Utility companies also distribute a lot of earnings to shareholders, because their cash flows are relatively predictable.

DTE Energy (NYSE: DTE) serves 2.2 million electric utility customers and 1.3 million natural gas utility customers, all of whom are in Michigan. The company had flat revenues over the past three years, and its management team is forecasting earnings in 2021 that are roughly equal to last year’s. There’s basically no opportunity for growth here, but stability is the real draw.

The stock is less volatile than the broader market, helping it endure bear markets, and at current share prices offers a healthy 3.2% forward dividend yield. With a dividend payout ratio of only 58% and a 3.14 interest coverage ratio, investors can feel confident that the quarterly payouts are secure.

3M has stuck to its dividend-raising habit

3M (NYSE: MMM) is a $100 billion company that produces more than 60,000 products across a range of industries, including household goods, healthcare, industrial production, personal safety, and transportation. It uses its scale and a large R&D budget to maintain its leadership position within much of that portfolio.

Like DTE, 3M is not a candidate for growth. However, it produces reliable cash flows, and it’s highly unlikely that its massive and diversified business could be disrupted quickly. It’s a steady enterprise that’s also a Dividend Aristocrat. In fact, it has one of the longest streaks of annual dividend hikes on that list, at 57 straight years.

At current share prices, the stock pays a 3% yield, and it has a manageable 64% payout ratio. There’s nothing spectacular about 3M, but there’s every reason to expect it to march slowly forward. That’s a highly sought-after quality for a stock in an income-focused portfolio.

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