Investing For Rising Retirement Expenses: 10 Dividend Aristocrats To Consider

by: Avi Morris

The US government barely got by the fiscal cliff at the start of January, but problems remain in the economy. Large federal budget cuts must be made and the federal debt ceiling needs to be raised to finance continuing massive budget deficits. Credit downgrades for Treasury debt may be around the corner. But stock averages have risen from recession lows 4 years ago to heights not seen in years as risk averse has largely vanished from the minds of investors. With unresolved macro-economic issues, stocks are vulnerable.

Yields are at or near record lows which are hard on retirement investing. After treasury yields reached record lows last year, the yield on 10 year Treasury bond rose from 1.4% to over 1.9% (still low by historical standards) in recent months. Quality stocks provide significantly higher yields (which are taxed favorably as qualified income in taxable accounts). Dividend increases give stocks an added advantage which is more meaningful when dividends are reinvested.

Investment considerations have changed but retirement needs have not. Even though some investors think primarily of income producing stocks and bonds, growth also has value in retirement investing. Many retirees live active lives for 20 or more years during retirement and expenses are subject to inflation. In later years there can be substantial increases when greater care is often required.

High income, capital growth and defensive qualities are all important during retirement years. 10 Dividend Aristocrats with these qualities and yields of 3% or greater are selected below. Each company has been increasing annual dividends for at least the last 25 years. During recessions in modern times, many blue chip companies ended their streaks of raising dividend when these companies kept raising dividends because of strong business fundamentals and financial strength.

10 High Yielding Dividend Aristocrats:









Leggett & Platt (NYSE:LEG)



Sysco (NYSE:SYY)



Kimberley-Clark (NYSE:KMB)



Johnson & Johnson (NYSE:JNJ)



McDonald's (NYSE:MCD)



Procter & Gamble (NYSE:PG)



Genuine Parts (NYSE:GPC)



Pepsico (NYSE:PEP)



The first 3 are very attractive for retirement accounts seeking higher income. AT&T has been selling telephones to consumers from the start of the telephone business. HCP is the only REIT that qualifies as a Dividend Aristocrat. An additional advantage is that only a portion of the dividend is taxed in taxable accounts. LEG earnings were hurt from the recession 4 years ago but the company is recovering and has had a large stock repurchase program. Their annual dividend increases have been limited, typically about 4¢, but they will reward stockholders with dividend increases.

Higher yields are essential to pay for rising costs and a stream of increasing dividends is valuable with for those with longer time horizons. PG has been paying annual dividends since 1890. JNJ and PG have dividend streaks of more than half a century. JNJ is one of a handful of industrial companies with the coveted AAA credit rating. All these companies share a commitment to reward shareholders with total return - dividends and capital appreciation.

Stocks began this year with an impressive rise. The Dow has risen almost 800 while largely ignoring economic problems. The federal government is on a big spending road and struggling to come to terms with reducing massive deficits. Republicans are demanding significant budget cuts while Democrats want increased spending and higher taxes. Federal budget cuts are scheduled to start on March 1 and by the end of the month Congress has to approve funding for the federal government. In May the debt ceiling must be increased again. However, DC is deeply divided. Indecision about significant spending issues has not been programmed into rising stock prices.

Defensive considerations for retirement investment in this economic environment are essential. While DC attempts to get spending under control, expenses during retirement or for future retirement are rising. That's all but certain. Stockholders of these companies know how good it feels to receive dividends, especially when they rise before and during retirement. Higher dividends will bring capital appreciation.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.