Retirement investing has become more challenging in the last 12 years. Stock markets were more volatile and have had difficulty reaching new record highs. Traditionally, capital appreciation has accounted for about 2/3 of investment gains, but not in recent years. At the end of 1999, popular averages were near peaks. Then the stock market had a major sell-off with extreme volatility and has been not been able reach a new record since 2007. The graph below for the Dow Jones Industrials tells the story:
Dividends provide the balance of investment gains and quality stocks have delivered rising dividends. The best are Dividend Aristocrats, stocks that increased annual dividends for at least the last 25 years (many have streaks of 30, 40 or 50+ years). Each of these companies has been increasing annual dividends when others cut dividends and many popular stocks have had a difficult time earning capital appreciation.
A higher investment value that brings a growing income stream is more important than ever for retirement accounts. Retirees are living longer and expenses are rising, especially in later years when care needs can skyrocket. Rising income is needed to help pay for increased expenses. Those who don't need current income reinvest dividends for even higher income in later years.
Bonds and Treasury debt have traditionally been a key investment in retirement accounts. But those yields are near record lows and investors are looking for higher yields. Below are 10 stocks for retirement investing, their fundamental values have not changed. The first 5 are for current income that is growing. Their dividend increases have been moderate with limited stock price growth. The second 5 are more appropriate for accounts with longer time horizons. The stocks have at least doubled over the last decade and annual dividend increases have been more substantial (around 16¢) and they still provide attractive yields in a low yield environment.
(1) HCP Inc (HCP), a REIT, invests in senior housing, medical offices, nursing homes and hospitals. Recent annual dividend increases have been 6¢, but in 2012 the increase was 8¢ to $2.00 and last month the dividend was raised to $2.10. The yield is 4.2%. Over 24% of the 2012 dividend was classified as non-dividend distribution for taxable accounts.
(2) Leggett & Platt (LEG) makes components for bedding, furniture and auto seating. 5 years ago it jumped the annual dividend to $1 just before the recession hit LEG very hard. Since then annual dividend increases have been 4¢. The yield is 3.9%.
(3) Sysco (SYY) is the global leader in food products for restaurants, healthcare and educational facilities, lodging establishments and customers who prepare meals away from home. Annual dividend increases have been 4¢ in recent years. The yield is 3.4%.
(4) Everybody knows McDonald's (MCD), with 34,000 restaurants in more than 100 countries. It is committed to global expansion. The stock is up $7 YTD after declining last year and the dividend provides one of the highest yields in its history. Dividends have been increased annually since the IPO in 1976. The yield is 3.3%.
(5) Johnson & Johnson (JNJ) is the largest health care company in the world. Numerous product recalls in recent years have hurt earnings, but problems are being corrected. Recent annual dividend increases have generally been 16¢. The yield is 3.2%.
6) Genuine Parts (GPC) is a service organization that distributes automotive replacement parts, industrial replacement parts, office products and electrical/electronic materials. The dividend was just raised from $1.98 to $2.15 (for 57 consecutive years of higher dividends). The yield is 3.1%.
7) Exxon Mobil (XOM) is the largest energy company in the world descending from the original Standard Oil founded 130 year ago. XOM operates 36,000 oil wells and is expanding natural gas production. The dividend is 66% above the 2007 level. The yield is 2.6%.
8) McCormick (MKC) sells flavor products and other specialty food products to the food industry worldwide, operating in 2 segments: Consumer (spices, herbs, extracts, seasoning blends, etc.) and Industrial (seasoning blends, natural spices and herbs). The dividend is 70% above the 2007 level. The yield is 2.2%.
9) VF Corp (VFC) is the largest apparel company, a global leader in branded lifestyle apparel with brands that include Wrangler, North Face, Lee, Vans and Nautica. The dividend is 56% above the 2007 level. The yield is 2.1%.
10) Sherwin Williams (SHW) manufactures and sells paint, coatings and related products to professional, industrial and retail customers. The dividend is 59% above the 2007 level and was just increased from $1.56 to $2.00. The yield is 1.3%.
These stocks have done well since 2012, partially because investors are demanding higher yields and growing dividends. 3 have already increased dividends and the rest will extend their streaks later in the year. Unsatisfactory stock growth promotes the value of predictable dividends in retirement accounts. These companies share a commitment to reward stockholders and can be counted on to increase dividends for a higher quality of life in retirement. Capital appreciation should accompany higher dividends.
Disclosure: I am long VFC.