When looking to build a retirement portfolio that can fund your living expenses with passive income from dividends, it is typically prudent to look for investments that meet the following four basic requirements:

1. A durable and defensive business model that will stand the test of time as well as economic and technological disruption.

2. A solid investment-grade balance sheet that can support the company and its payout through thick and thin.

3. A sufficiently high yield that will enable you to comfortably fund your living expenses with cash flow from your portfolio without needing too large of an initial nest egg, such that you’ll have to delay your retirement for a long period of time to accumulate it.

4. The prospect for dividend growth that, at least in aggregate, will meet or exceed inflation over the long term.

In this article, we’ll discuss four stocks that meet these requirements as we begin the month of June.

1. Enterprise Products Partners (EPD)

EPD excels on all four of these fronts. Its business model is definitely defensive and durable, as its energy infrastructure is strategically located, well diversified across energy asset types and geographies, and has proven to be extremely resilient by delivering stable cash flows and returns on invested capital north of 10% through all sorts of market and energy sector conditions. Additionally, with an A- credit rating from S&P and a very low 3.0 times leverage ratio, along with significant liquidity and a well-laddered debt maturity calendar, it has a very strong balance sheet.

Moreover, with an approximately 7.5% forward distribution yield, its distribution is very attractive. The distribution is covered 1.7 times by distributable cash flow. When combined with the strong growth pipeline the company is investing in and its current 5% distribution growth rate and quarter-century streak of growing its distribution every year, there’s a high likelihood that EPD will continue to grow its distribution at a rate that exceeds inflation for years to come.

2. Realty Income (O)

While Realty Income may not be growing as fast as it used to due to its large size and the elevated cost of capital restricting its ability to grow aggressively, it is one of the safest REITs with its massive diversification. Additionally, it holds an A- credit rating from S&P and has a triple net lease business model that makes it very defensive and able to generate stable cash flows through thick and thin. Moreover, a large percentage of its revenue comes from e-commerce-resistant essential retail, making it quite disruption-resistant.

In addition to its strong balance sheet and business model, it has an attractive 6% next 12-month dividend yield that is well covered by adjusted funds from operations, making it an attractive cash flow generator that can be counted on for years to come. Realty Income is also expected to grow its dividend per share at a 5% CAGR through 2028, meaning it should continue to grow its payout at a rate that exceeds inflation for years to come.

3. Verizon (VZ)

While we generally are cautious about the telecom sector due to its high capital requirements and intense competition, Verizon is expected to grow its dividend at approximately a 2% CAGR over the next several years. When combined with its 6.7% next 12-month dividend yield that is well covered by cash flow, the company should be able to pay out a sufficiently high yield that will grow at least close to the expected rate of inflation, even if it lags a little bit behind. Moreover, its very large and well-established position in an essential service makes it both defensive and durable. Last, but not least, its investment-grade balance sheet means that it should be able to continue supporting its dividend moving forward.

4. Enbridge (ENB)

While Enbridge has some midstream overlap with Enterprise Products Partners, it also provides significant and growing exposure to regulated utilities and regulated energy infrastructure, along with some exposure to renewable power generation. With a 7.5% next 12-month dividend yield, a more than a quarter-century streak of growing its dividend year after year, and an expected dividend per share growth rate of 3.1% through 2028, it meets our initial dividend yield and dividend growth requirements. Additionally, given its regulated asset exposure and the fact that its non-regulated assets are almost entirely contracted with lengthy terms to almost entirely investment-grade counterparties, Enbridge’s BBB+ credit rating from S&P checks the durable and defensive business model as well as sufficiently strong balance sheet requirements with flying colors.

Investor Takeaway

When you combine these four stocks together and assume equal weighting to each, you get a weighted average dividend yield of about 6.9%, a weighted average expected annualized dividend growth rate of 3.75%, and a weighted average credit rating of about BBB+. All these businesses are also quite defensive and stable, as well as disruption-resistant, making them dependable cash flow generators and dividend payers. As a result, you get a very well-established base for your retirement portfolio from them that is fairly well diversified for funding your retirement lifestyle while also not having to worry too much about your purchasing power keeping up with inflation.

While there are numerous other attractive opportunities in the high-yield space – many of which we actually favor over some of the stocks listed in this article – for investors who are less concerned with maximizing total returns and instead simply want an attractive, reliable, and inflation-matching or even inflation-beating passive income stream, it’s hard to find four stocks from a diverse set of sectors that can beat these.