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Worried Social Security Isn’t Enough? 5 Passive Income Stocks to Buy in 2023 for a Better Retirement

Despite 2023's Social Security cost of living adjustment (COLA) designed to account for inflation, many retirees may find that the benefits increase fails to keep up with rising costs for food, housing, healthcare, and other expenses. Whether you're planning for retirement or already retired, owning a collection of dependable dividend stocks could be a path to generating additional income and getting more enjoyment out of your non-working years.

If you're aiming to build supplemental income streams for retirement, read on for a look at five top stocks that could serve as the foundation for a strong dividend portfolio.

A person looking at a laptop.

Image source: Getty Images.

1. AT&T

After its relatively short-lived merger with Time Warner, AT&T (NYSE: T) saw the need to spin off its media businesses and get back to basics. As a result of the restructuring and reduced cash-flow generation, the telecom giant wound up cutting its dividend 47% last year. But even after the big payout cut, AT&T still offers one of the best yields among S&P 500 companies.

Dividend Yield Years of dividend growth Dividend growth over last five years
6% 0 (44.5%)

Data source: AT&T; Ycharts.

Now that the company has shifted its focus from the media market and back to the bread and butter of communications, it's scoring wins with fiber and its core wireless businesses. Domestic wireless services revenue climbed 5.1% annually last year, and consumer broadband sales rose 6.4% thanks to a 29% revenue increase for AT&T Fiber. With shares now trading at just 7.7 times this year's expected earnings, the telecom giant looks like a worthwhile buy for investors seeking inexpensive stocks and big dividends.

2. Verizon

Like AT&T, Verizon (NYSE: VZ) is a leading player in the telecommunications sector. On the heels of AT&T's dividend cut, Verizon now actually has the longest streak of consecutive annual payout growth in the U.S. telecommunications industry.

Dividend Yield Years of dividend growth Dividend growth over last five years
7% 16 10.6%

Data source: Verizon; Ycharts.

Verizon has the U.S.'s largest and top-rated wireless network, the company generates tons of free cash flow, and its strong position in 5G could open the door for new growth opportunities with both consumer and business markets. Trading at roughly 8 times this year's expected earnings, this is another high-yield telecom stock that looks like a smart portfolio addition for those seeking dividend income in retirement.

3. Altria Group

For dividend investors who aren't put off by the prospect of owning sin stocks, cigarette maker Altria Group (NYSE: MO) has the makings of a great addition to an income-focused portfolio. Between its fantastic yield and nearly unmatched history of payout growth, Altria Group has one of the best dividend profiles on the market, and shares look cheaply valued after falling roughly 25% during the past five years.

Dividend Yield Years of dividend growth Dividend growth over last five years
8% 53 34.3%

Data source: Altria; Ycharts.

With the company's stock trading at roughly 9.4 times this year's expected earnings and paying a huge yield, Altria trades at attractive levels for investors seeking dividend income in retirement. Although the company is posting scant sales growth as unit sales volume for cigarettes continue to decline, the business has increased earnings per share through a combination of price increases and stock buybacks.

Additionally, the market seems to be estimating a very small chance that the business can successfully move beyond its core tobacco business. So if Altria can score even moderate wins on that front, investors might be willing to pay much larger multiples for the company's stock.

4. Realty Income

Realty Income (NYSE: O) is a real-estate investment trust (REIT) that specializes in leasing properties to businesses. As an REIT, the company is legally required to return at least 90% of its taxable income to shareholders in the form of cash dividends. Realty Income also has the distinction of making payouts on a monthly basis, and it even bills itself as “the monthly dividend company.”

Dividend Yield Years of dividend growth Dividend growth over last five years
4.7% 19 16%

Data source: Realty Income; Ycharts.

Realty Income has more than 11,700 properties under long-term net lease agreements in which tenants pay most costs of operating a property. It boasts a 99% occupancy rate across its real estate portfolio, and it's delivered a 14.6% total compound annual return since listing on the New York Stock Exchange in 1994. With its most recent declaration, Realty Income is on track to have paid its 633rd monthly dividend across its 54 years in operation, and it's raised its payout 120 times since going public.

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Image source: Getty Images.

5. American Tower

Like Realty Income, American Tower (NYSE: AMT) is an REIT, but its market focus is quite different. Rather than renting out commercial retail and business properties, the company rents out cellular communications towers. Telecommunications services will likely only become more essential for business and everyday life, and American Tower is a leading provider in the cell-tower market.

Dividend Yield Years of dividend growth Dividend growth over last five years
2.9% 10 108%

Data source: American Tower; Ycharts.

Although American Tower's dividend yield might look small compared to those of other stocks on this list, the company has been raising its payout at a much faster clip. The REIT has more than doubled its payout over the past five years, and there's a good chance it will continue to deliver rapid payout growth. American Tower has actually increased its payout in each subsequent quarter since Q1 2012, and there's a very good chance that it will deliver another increase with its next earnings report.

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Keith Noonan has positions in AT&T. The Motley Fool has positions in and recommends American Tower. The Motley Fool recommends Realty Income and Verizon Communications. The Motley Fool has a disclosure policy.

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