Higher income for retirement accounts is more important than in the past. People are living longer and have a higher quality of life than ever before and extra income is needed to support more activities for a longer period of time. In addition costs can skyrocket in later years if more additional care and medical costs are needed.
Stock prices have risen since late 2008 with the Dow Jones Industrials reaching new record highs despite a lack of supporting economic data. The Dow is up 11% YTD even though the GDP only inched higher in Q4, 2012, and the outlook for Q1, 2013, is for much of the same. Europe is forecasted to shrink in 2013 although banking problems have been mending. New leadership in China has to cope with limited export growth from sluggish or weak economies around the world.
Smart retirement investors want high income, capital growth and defensive characteristics from investments. High yields with growing dividends in retirement accounts are important to fund a quality life for retirees. The best stocks are Dividend Aristocrats which have raised annual dividends for at least the last 25 years. There are only 51 companies from the S&P 500 Index, along with a handful of smaller companies, which qualify out of roughly 20,000 stocks. In the difficult recession almost 5 years ago, these companies increased dividends when many highly regarded companies ended their streaks. During the recessions in 2000, 1990, and, for most of these companies, through the very brutal recession in the early 1980s, they were strong enough to keep raising annual dividends.
As the market rose their high yields caused the stocks to be bid up, lowering the yields. Even with lower yields, they remain attractive in today's environment. Below are 10 Superior High Yielding Dividend Aristocrats:
Leggett & Platt (LEG)
Johnson & Johnson (JNJ)
The 3 highest yields are above 4% while the 10-year Treasury bond offers only a 2% yield for the next 10 years. A yield of at least 3+% from these stocks represents a significant contribution on earning a target rate of return for retirees.
AT&T descend from the original telephone company founded by Alexander Bell in the 19th century and became known as Ma Bell. It sells traditional phones using landlines and also sells iPhones for its cell phone business. It has been thought of as a high yield dividend stock while raising annual dividends.
HCP is an REIT that invests in healthcare real estate: senior housing, medical office, nursing and hospitals. This is the only REIT that is a Dividend Aristocrat and a portion of its dividend is non-taxable.
ED is the electric, gas and steam utility for millions in the New York City area. Earnings increases have been modest and annual dividend increases were 2¢. But dividends have been increased through difficult times.
LEG makes components for bedding, furniture and auto seating. In recent years annual dividend increases have been 4¢, good enough to extend its streak. The stock is up from $20 in the last 9 months.
KMB is a major paper company with brand names such as Kleenex, Scott and Huggies. Its rich yield caused the stock to rise from $75 in the last 12 months.
SYY sells food and related products primarily to food service companies and the food away from home industry. Recent earnings have been lackluster, but the stock is up $7 in the last 9 months.
NUE manufactures steel and steel products through 3 segments: Steel Mills, Steel Products and Raw Materials. Earnings suffered during the recession but are rebounding from $1.78 last year to forecasts of $2.22 this year and $3.79 next year. Its streak of higher dividends continued with annual increases of a penny.
MCD has one of the best known brand names around the world and is adding restaurants, largely in emerging countries with rapidly growing economies. Dividends have risen sharply from $1.50 in 2007 to $3.08 presently.
JNJ is the largest healthcare company in the world. It's had major recalls in consumer products (such as Tylenol) but those problems are being solved. Annual dividends have been raised for more than 50 years.
CLX sells popular consumer products such as Clorox, Pine-Sol, S.O.S. and Glad. Its fundamental values and mediocre earnings have attracted takeover interest, including Carl Icahn. This year, the stock is up $12.
Dividend growth has continued which has attracted investors looking for value. Stocks with higher yields have had limited increases, but these managements are rewarding investors by extending dividend streaks.
Capital appreciation for stocks has been spotty in recent years. Since the start of 2000, the Dow Jones Industrials index is up only 26% for roughly a 2% annual increase. In late 2008, the Dow plunged 50% from its peak in 2007. Many stocks, including some of the finest, have similar performances (or worse) and the lack of capital appreciation has disappointed retirees. Limited capital appreciation means there is less money available to reinvest for upgrading income. And today it's difficult to find high yield securities with low risk in a low yield environment.
Macro-economic statistics have been good in recent months, but the fiscal debt mess in Washington has the potential for causing problems with the recovery. Especially during these uncertain times, Dividend Aristocrats provide a degree of safety (especially desirable for retirement investments). Their dividends are expected to rise at a time when not all companies can make that claim. Additionally, it should not be necessary to reinvest proceeds in higher income securities when extra income is needed. Capital appreciation should follow a history of rising dividends.