13 Best Stocks for Retirement Investing

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 |  Includes: ABT, ADP, AFL, BMS, CLX, EMR, JNJ, KMB, LEG, PEP, PG, PPG, RPM
by: Avi Morris

The drop in stock prices has given opportunities to invest in quality companies and earn attractive yields for retirement investing. When investing for retirement, smart investors want respectable yields, capital growth and defensive qualities so that the investments will grow for future years or after retirement has begun. 13 Dividend Aristocrats were selected. At a minimum, each company has been increasing dividends annually for the last 25 years. In 2008 and 2009, their dividends were increased when many highly regarded companies such as General Electric (NYSE:GE), Pfizer (NYSE:PFE), Masco (NYSE:MAS) and Bank of America (NYSE:BAC) ended their streaks because of a very difficult recession. That was also the case in the 2000 recession, 1990 recession and, for most of these companies, through the very brutal recession in the early 1980s. That performance shows financial strength and a commitment to reward shareholders. These companies are presented below in descending order of yields:

13 High yielding Dividend Aristocrats:

Company Price Yield
Leggett & Platt (NYSE:LEG) $20.10 5.6%
RPM International (NYSE:RPM) 19.68 4.3%
Kimberly-Clark (NYSE:KMB) 65.14 4.3%
Abbott Laboratories (NYSE:ABT) 49.63 3.9%
Johnson & Johnson (NYSE:JNJ) 63.36 3.6%
Clorox (NYSE:CLX) 67.65 3.5%
Procter & Gamble (NYSE:PG) 61.14 3.4%
PepsiCo (NYSE:PEP) 63.18 3.3%
AFLAC (NYSE:AFL) 37.35 3.2%
Bemis Co. (NYSE:BMS) 29.54 3.2%
Emerson Electric (NYSE:EMR) 46.30 3.0%
Automatic Data Proc. (NASDAQ:ADP) 47.27 3.0%
PPG Industries (NYSE:PPG) 75.06 3.0%
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Last week, the Treasury had a very successful auction for 10 years bonds at a record low yield of 2.1%. Investors locked up a meager yield for 10 years (even after the credit rating of the debt had been reduced). Quality stocks provide higher yields with growing dividends. The above stocks have minimum yields of 3%, a significant start on earning a target rate of return demanded in a retirement account. Studies have shown that over the last 2 decades, dividends have provided more than 40% total returns for the S&P 500 )SPY). Stocks have an added advantage with expectations of dividend increases, which will be more meaningful if dividends are reinvested. Growing dividends are supported from rising earnings, which should lead to higher stock prices.

LEG has the highest yield, but I would like to feature RPM. It's not in the S&P 500 Index, with a market cap of less than $3 billion. The greatest attraction is that it is proud of achieving dividend growth for stockholders. The company said that of 19,000 publicly traded US companies, only 49 have increased dividends annually for at least 37 years (as RPM has) and dividends make up a significant part of many investors’ total return. Being paid on a quarterly basis, they are a reliable source of income that consistently rewards investors.

RPM companies are leaders in specialty coatings and sealants serving industrial and consumer markets. Brand names include Zinsser and Rust-Oleum. The company has manufacturing facilities in 20 countries and products are sold in 150 countries. In May, RPM increased its minority interest from 14.9% to 18.3% in Kemrock Industries, an integrated fiberglass company in India with over $200 million in sales. Later in May, RPM sold $150 million of notes due in 2019, with an effective yield to maturity of 4.9%.

Fiscal 2011 sales (ending May 31) were up 8.5% to $3.4 billion, EBIT increased 10.5% to $345 million, net income improved 16.1% to $189 million and diluted EPS grew 15.1% to $1.45 (all pro-forma). Prior-year pro-forma results assume that the deconsolidation of a $300 million business sold and the deconsolidation eliminated approximately $300 million of sales. RPM is guiding FY2012 sales growth of 8%-10% and 10%-15% EPS growth while facing higher prices and unsettled economic conditions in North America and Europe. In the decade ending May 2010, its stock investment tripled when the S&P 500 was flat (including reinvested dividends). Last year, the stock was little changed due the recent market decline (similar to the S&P 500).

The 13 companies have been raising dividends much longer than the minimum 25 years. EMR and PG have streaks of more than half a century and JNJ will join them next year (only a few months away). PG has been paying annual dividend since 1890. ADP and JNJ are only a few among a handful of industrial companies with the coveted AAA credit rating (although JNJ has received a warning that its rating may be reduced). Carl Icahn recently raised his offer to $80 for CLX shares he does not own, but that outcome is unclear. A list of stocks is presented because investor taste varies from one to the next. But these companies share a commitment to reward shareholders with total return, dividends and capital appreciation. During a declining stock market and especially following an unusually wild week, it feels good to receive dividends, which are expected to rise before and during retirement. Capital appreciation should follow.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.