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The 10 Best Dividend Stocks For Retirement

Published March 8th, 2016

Retirees want their portfolios to provide safe, consistent, reliable income that grows faster than the pace of inflation.

Retirees want investments that will protect their nest egg, allow them to sleep easy at night, and provide steady income.

Dividend stocks perfectly match retirement investor needs. Dividend stocks can also lead to early retirement.

Investing in high quality dividend growth stocks provides retirees with consistent, reliable, growing dividend income.


Not all dividend stocks are created equal.

Some are high risk – high yield stocks. They can be appealing to retirees, but they are dangerous.

The last thing you need in retirement is for your nest egg to get scrambled.

Other dividend stocks have fantastic growth potential and a high degree of safety – but have very low yields.

These stocks may make good investments for younger investors. They do not make good investments for dividend investors in retirement because they don’t satisfy retirees’ income needs.

The best dividend stocks for retirees have the following characteristics:

Finding great blue chip stocks like this can be very challenging…

But to find the best dividend stocks for retirees now, you must match all of the criteria above and make sure the stock is trading at fair or better value.

This article examines the 10 best dividend stocks for retirement today. All 10 stocks match the requirements discussed above.

10 Best Dividend Stocks for Retirement

Retirement Dividend Stock: Archer-Daniels-Midland

Archer-Daniels-Midland (ADM) is one of the largest agricultural product businesses in the world. The company originates:

Retirees should take notice of Archer-Daniels-Midland. The company is one of the highest ranking stocks using The 8 Rules of Dividend Investing.

Here’s why Archer-Daniels-Midland ranks so highly – the company has a high dividend yield of 3.2%, a reasonable payout ratio of ~50%, a strong competitive advantage, 41 consecutive years of dividend increases, and a long-growth runway ahead. Best of all, it is deeply undervalued at current prices.

Archer-Daniels-Midland’s competitive advantage comes from its excellent global supply chain. The company has:

The company’s competitive advantage and continuous growth is what has allowed the company to pay increasing dividends for 41 consecutive years.

Growth is not over at Archer-Daniels-Midland. The long-term growth driver for the company is growing global populations. Growing populations mean more food. More food leads to more profits for Archer-Daniels-Midland shareholders.

In the shorter run, the company is growing through shedding low margin businesses and acquiring higher margin businesses. Recent acquisitions include:

These acquisitions will lead to greater stability in Archer-Daniels-Midland’s earnings.

The one downside to the stock is its fluctuating earnings. Archer-Daniels-Midland’s profits are cyclical due to fluctuations in commodity prices and currencies. Right now, the company is in at a cyclical low point.

Don’t confuse this cyclicality with riskiness. Archer-Daniels-Midland’s 41 year history of consecutive dividend payments shows the company prioritizes its dividends. The company’s management keeps payout ratios fairly low to offset earnings cyclicality. Even at current cyclical earnings lows, the company has a safe 50% payout ratio.

The company’s cyclical downturn has made the stock a bargain. Archer-Daniels-Midland is trading near all-time dividend yield highs.

ADM Dividend Yield HistorySource: Sure Dividend

Investors don’t like to see falling earnings – even if it is at a cyclical company that will rebound.

ADM is currently trading for an adjusted P/E ratio of just 12.4. ADM’s historical median P/E ratio over the last decade is around 13.5.

Earnings-per-share are depressed at $2.98/share. Keep in mind earnings are currently depressed. Under normal conditions the company’s earnings would likely be around $3.50 per share.

Using ‘normal’ EPS of $3.50 and the company’s median average P/E ratio of 13.5 implies a fair value of ~$47 per share. Archer-Daniels-Midland is currently trading at ~$37 per share and has 27% upside at current prices.

Retirement Dividend Stock: Flowers Foods

Flowers Foods (FLO) is the second largest baking company in the United States (Grupo Bimbo is larger). Flowers Foods bread and cake brands are better known than the company. Flowers Foods owns the following brands (among others):

Nature’s Own is America’s leading bread brand. The bread industry may seem boring – but the growth that Flowers Foods generates is exciting. The company has compounded earnings-per-share at 13% a year and dividends at 16% a year over the last decade.

Growth should continue far into the future for Flowers Foods. People will be buying bread for a long time…

Flowers Foods has a long growth runway ahead.

The company is a leader in a highly fragmented industry and currently serves just 85% of the US population. Geographic expansion will lead to growth, as will growing out underserved areas geographically.

FLO Growth
Source: Flowers Foods Investor Presentation, slide 5

In addition to geographic growth, Flowers Foods will also see benefits from organic bread growth. The company is well positioned to capitalize on this growth through the Dave’s Killer Breads and Alpine Valley Bread brands.

Flowers Foods’ stock currently has an above average dividend yield of 3.3%. The company has paid steady or increasing dividends for 29 consecutive years – the kind of stability retirees need from their dividend investments.

The company’s long dividend streak is a result of its competitive advantage in the bakery industry. Flowers Foods’ competitive advantage comes from a mix of:

  1. It’s large size relative to other smaller bakers
  2. It’s well-known brands

These two factors make it difficult for new entrants to the bread industry to compete with Flowers Foods.

There’s no question Flowers Foods is a high quality dividend growth stock. But is the company’s stock trading at a fair price?

Flowers Foods has traded for a price-to-earnings ratio above 20 for much of the past 5 years.

The company is currently trading for a price-to-earnings ratio of 19.3 using adjusted earnings. A fair price-to-earnings ratio for the company is likely 20 around 20.

Flowers Foods is trading around fair value at current prices. The company makes a good investment for retirees looking for safety, current income, and income growth.

Retirement Dividend Stock: Verizon

Verizon (VZ) is the largest wireless carrier in the United States.

The company satisfies the high yield requirement retired investors need. Verizon currently has a 4.3% dividend yield.

Verizon’s operations are similar to a utility. The company provides recurring communication services that are difficult to go without in today’s connected world.

What differentiates Verizon from most utilities is its faster growth rate (in comparison). The company has compounded earnings-per-share at 5% over the last decade.

Growth has been faster in recent years. The company grew adjusted earnings-per-share 19.1% in fiscal 2015. Growth was driven primarily by margin expansion from divesting old business lines and acquiring more profitable operations.

VZ 2015 Results
Source: Verizon Q4 2015 Results Presentation, slide 6

Verizon recently acquired AOL to build a digital and video growth platform centered on mobile users which will be monetized through advertising. The company is in the early stage of monetizing its content platform through its Go90 app.

Verizon’s long-term growth driver is increased data usage. As data use continues to grow, the company’s wireless services will be in more demand.

Over the long run, I expect the company to grow earnings-per-share by at least 6% a year. This growth combined with the company’s current 4.3% dividend yield gives investors double-digit expected total returns.

The company’s long-term growth is protected by a strong competitive advantage. Verizon and AT&T together control over 80% of the wireless market in the United States. The telecommunications market has high barriers to entry which inhibit competition due to the large up-front costs of building a network. Additionally, spectrum auctions prohibit competition. Verizon spent $10 billion in the latest spectrum auction (which raised $44 billion total for the US government).

The company’s competitive advantage has led to 32 years of dividend payments without a reduction.

Verizon stock is currently trading for a price-to-earnings ratio of just 13.1. The company’s low price-to-earnings ratio does not seem warranted given the company’s strong competitive advantage and double-digit total return potential.

Retirement Dividend Stock: AT&T

AT&T’s (T) business model is very similar to Verizon’s. AT&T is the other large player in the United States wireless industry.

Like Verizon, AT&T has a high dividend yield. AT&T’s dividend yield is even higher than Verizon’s. The company has a high 5.0% dividend yield.

In addition to having a higher dividend yield than Verizon, AT&T also has a better dividend streak. AT&T has paid increasing dividends for 32 consecutive years. This makes AT&T a member of the exclusive Dividend Aristocrats Index.

No business can increase its dividend payments for 32 consecutive years without having a strong competitive advantage.

AT&T Dividend HIstory

AT&T’s competitive advantage is similar to that of Verizon’s. The company is one of the largest players in the oligopolistic and heavily regulated United States telecommunications industry.

The telecommunications industry has very high fixed upfront costs. In addition, spectrum option costs are measured in the billions. It would take a new entrant billions of dollars to compete with AT&T (or Verizon). This limits the amount of companies in the telecommunications industry which helps to make the largest current firms even more profitable.

AT&T’s future growth will be driven by increased data usage. The company is expanding into Mexico in an attempt to drive growth. AT&T recently acquired both Lusacell and NextelMexico for a combined $4.4 billion to gain a foothold in Mexico.

International expansion combined with organic growth will fuel growth for AT&T. I expect the company to compound its earnings-per-share at between 4% and 6% a year over the next several years. This growth combined with the company’s current 5% dividend yield gives investors expected total returns of between 9% and 11% a year.

AT&T is currently trading for a price-to-earnings ratio of just 14.2. The company’s low price-to-earnings ratio, high dividend yield, and stable business model make a compelling investment for retirees.

Retirement Dividend Stock: Consolidated Edison

Consolidated Edison (ED) is an electricity and gas utility corporation with operations in New York, New Jersey, and Pennsylvania. The company is one of the larger utilities in the United States and serves over 3 million customers.

Consolidated Edison Regulated Utilities

Source:  Consolidated Edison Investor Relations

What’s most impressive about the company is its long dividend history. The company has paid rising dividends for 42 consecutive years.

The company has a well-above-average dividend yield of 3.4% at current prices. Consolidated Edison combines a fairly high yield with extreme consistency.

The utility industry is very slow changing. People will very likely still need gas and electricity to their house (or at least electricity) 50 years from now – just as they did 50 years ago.

Consolidated Edison investors benefit from the company’s low risk business model by not ‘losing any sleep’ over the future of the company.

The company’s primary growth driver is incremental GDP growth in the areas it serves. This means Consolidated Edison will likely be able to increase its dividends at about the pace of inflation – or a bit faster.

In total, I expect Consolidated Edison to grow earnings-per-share at 3.5% a year. This growth combined with the company’s dividend yield gives investors an expected total return of 7% a year.

7% a year expected total returns is not eye-catching. When one considers the ultra-low risk of Consolidated Edison’s business model, it’s risk adjusted total returns look much more appealing. Consolidated Edison stock is similar to a bond – that can pay rising income year after year.

Consolidated Edison is currently trading for a price-to-earnings ratio of 17.7. The company is likely trading around fair value at current prices given today’s low interest rate environment.

Retirement Dividend Stock: SCANA Corporation

SCANA (SCG) is an electricity and natural gas utility with operations in North & South Carolina and Georgia.

SCG OperationsSource: SCANA Morgan Stanley Utilities Presentation, slide 1

SCANA is focusing heavily in growing its nuclear power generating capabilities. The company currently generates 20% of its power from nuclear sources. By 2021, it expects to generate 55% of its power from nuclear.

The company has been able to pass increasing rate increases to help pay for the cost of expanding its nuclear power operations.

SCANA has higher expected earnings-per-share growth than Consolidated Edison because the company operates in states that are seeing faster population growth. SCANA is expecting earnings-per-share growth of 4% to 6% a year over the next several years.

Dividends should grow at the same 4% to 6% a year pace. The company’s stock currently has a 3.5% dividend yield – well above the S&P 500’s 2.2% dividend yield.

Investors should expect total returns of 7.5% to 9.5% a year from SCANA from earnings-per-share growth and dividends.

SCANA has increased its dividend payments in 61 of the last 65 years. The company’s operations are especially stable due to natural geographic competitive advantage enjoyed by utilities. Utilities are highly regulated – and SCANA is no exception. The company has some room for additional growth as it is earnings a bit less than government mandated maximums.

SCANA is currently trading for a price-to-earnings ratio of 17.7. The company is likely trading around fair value given its solid expected total returns and low risk operations.

Retirement Dividend Stock: Southern Company

Southern Company (SO) is an electricity utility that supplies power to over 4.5 million customers in:

Southern Company is extremely stable. The company has paid dividends every quarter… Since 1948.

The company has not reduced its dividend payments since at least 1982 (and probably much longer). Southern Company’s recent dividend growth is shown in the image below.

Southern Company Dividend Increases
Source: Southern Company Investor Relations

Southern Company pays large dividends. The company’s dividend yield currently sits at 4.5%. Retired investors should take note of the company’s combination of a high yield and stability.

Like the other utilities discussed in this article, Southern Company’s competitive advantage comes from its natural geographic advantage and its presence in a highly regulated industry.

Southern Company is similar to Consolidated Edison in that it is not a fast growing business. The company has managed to compound earnings-per-share at 3.0% a year over the last decade and dividends-per-share at 3.9% a year over the same period.

The company’s management is expecting earnings-per-share growth of 4% to 5% a year. I believe this is a touch optimistic given the company’s historical growth. Earnings-per-share growth of 3% to 4% a year is more likely.

This growth combined with the company’s 4.5% dividend yield gives investors expected total returns of 7.5% to 8.5% a year – not bad for low risk, highly regulated utility business.

Southern Company is currently trading for a price-to-earnings ratio of 16.8. Like the other utilities in this article, Southern Company is likely trading around fair value given its stability, high yield, and growth prospects.

Retirement Dividend Stock: Emerson Electric

Emerson Electric (EMR) has an enviable dividend record. The company is one of only 17 Dividend Kings – dividend stocks with 50+ consecutive years of rising dividends.

Emerson Electric is a large diversified manufacturer with a $33 billion market cap and a 3.7% dividend yield.

The company’s stock price peaked at around $65 near the end of 2014. Today, Emerson Electric stock can be purchased for ~$51. The last 1.5 years have not been good for the manufacturing industry. Emerson Electric is no exception:

EMR Negative GrowthSource: Emerson 2016 Investor Conference Presentation

Despite the downturn, Emerson Electric’s payout ratio is still safe at just 50% of earnings.

Temporary negative growth has caused Emerson stock to become a bargain. The company’s shares are currently trading for a price-to-earnings ratio of 13.8.

Emerson is not a slow growth company. It has compounded both earnings-per-share and dividends-per-share at over 8% a year over the last decade. The company is suffering temporarily (as are many other manufacturers) from the decline in oil and gas prices, the growth slowdown in emerging markets, and the strong United States dollar.

Emerson Electric’s competitive advantage comes from its large size and global reach. The company has around 230 manufacturing facilities spread around the world.

Emerson Electric is splitting up its business to focus on its best individual business units. The company will divest around 1/3 of its business to focus on its more lucrative automation and commercial & residential solutions businesses.

These divestitures will very likely create value for shareholders over the long run as it better focuses the company on its core competencies.

Emerson Electric combines a high yield, with a very long streak of rising dividends, a low price-to-earnings ratio, and a value unlocking catalyst in upcoming divestitures.

Retirement Dividend Stock: Johnson Controls

Johnson Controls (JCI) is a diversified manufacturing company with a $24 billion market cap.

The company manufactures:

Johnson Controls has the following automotive market shares by region:

While some manufacturers are struggling due to the global growth slowdown, Johnson Controls continues to post favorable results.

The company realized 11% adjusted earnings-per-share growth in its most recent quarter due to large share repurchases and margin gains.

Johnson Controls stock currently has a 3.1% dividend yield. The company’s stock is trading for dividend yield highs not seen since the Great Recession of 2007 to 2009.

JCI Dividend Yield HistorySource: Sure Dividend

Johnson Controls has compounded its earnings-per-share at 7.7% a year over the last decade. The company is expecting 8% to 14% earnings-per-share growth in 2016. Over the long-run I expect EPS growth of between 7% and 9%, in line with historical averages. This growth combined with the company’s ~3% dividend yield gives investors expected returns of 10% to 12% a year.

Johnson Controls appears deeply undervalued at current prices. The company is trading for a price-to-earnings ratio (using adjusted earnings) of just 10.6.

Fortunately, there are 2 catalysts in place…

The first of which is Johnson Controls’ planned spin-off its automotive business in October of 2016. The spin-off will allow Johnson Control’s two primary business units to pursue independent strategies, which will benefit shareholders.

The second catalyst is Johnson Control’s planned merging with Tyco in a tax inversion. The deal is expected to be completed by the end of 2016 and will result in Tyco ‘relocating’ to Ireland to take advantage of favorable tax treatment.  Johnson Controls shareholders will own 56% of the combined company.

Johnson Controls had paid steady or increasing dividends for 38 consecutive years. The company’s stock offers investors an above-average yield, solid growth prospects, and consistent growth.

Retirement Dividend Stock: Cummins

Cummins (CMI) is the diesel engine industry leader. The company has the following market shares by category and region:

Cummins has a strong competitive advantage in diesel engine manufacturing. The company is much larger than competitors Navistar (NAV) and Detroit Diesel (not publicly traded). Caterpillar (CAT) also manufactures diesel engines, but it is not the industry leader. Cummins competitive advantage in diesel engine manufacturing has led to 25 consecutive years of steady or rising dividend payments.

The company’s stock has fallen to ~$100 per share since highs of ~$150 per share reached in the Summer of 2014. The global growth slow down and strong United States dollar have impacted the company – but not to the same degree as the selloff in the stock. Cummins is expecting earnings-per-share to decline by 2% to 10% in fiscal 2016.

The company’s stock is currently trading for a price-to-earnings ratio of just 11.5. Cummins is currently trading for dividend yield highs not seen since the very worst of the Great Recession – even though the company is still very profitable (Cummins has generated $1.4 billion in earnings over the last 12 months).

CMI Dividend Yield History
Source: Sure Dividend

Low stock prices have caused Cummins dividend yield to rise to 3.7%. The company’s dividend is very safe. Cummins currently has a conservative payout ratio of 44.8%.

When the macroeconomic environment shifts, Cummins will very likely return to growth. The company has compounded earnings-per-share at 11.3% a year over the last decade. I expect Cummins to continue growing earnings-per-share at a double-digit clip over the long run as it repurchases shares, increases efficiency, and continues its organic growth.

Now is an excellent time to purchase this industry leader while it is still trading at a discount to fair value.

Final Thoughts

This article analyzed 10 great businesses that fit the 5 characteristics retirement investors should look for in dividend stocks

  1. High yield for income
  2. Trading at a fair or better price
  3. A strong competitive advantage for safety
  4. A long growth runway for reliable future growth
  5. A long record of dividend increases for consistency

All 10 of the best dividend stocks for retirement analyzed in this article are shown below, sorted by dividend yield:

You will notice that none of the companies above have ultra-high dividend yields of 8%, 9%, 10%, or more. Businesses with extremely high yields tend to either have serious risks associated with the business or tend to have negative growth prospects.

Retirement investors who reach for yield run the very real risk of seeing their income stream decline over time. Investing in businesses with favorable growth prospects and above average yields provides a balance of current income and rising income potential in the future.

Above all else, it is critical to take a long-term perspective when investing; even in retirement (perhaps especially in retirement).

“The single greatest edge an investor can have is a long-term orientation”
Seth Klarman, Billionaire manager of Baupost Group

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