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September is statistically the worst month for the stock market and this one is living up to that reputation. The stock market has been in disarray since the interim peak in April 2011. Declining stock markets raise questions about investing retirement money.

Retirement accounts have long term horizons, many involve decades. Investment growth comes from capital appreciation and dividends. But capital appreciation in the last decade has varied. Many highly regarded companies have only mediocre records. If those trends continue, income earned from dividends will have greater meaning.

Dividends are rewards for stockholders from management. A history of growing dividends shows the connection management is making with stockholders, similar to increased wages paid by employers to employees. Only about 50 companies (out of thousands) qualify as Dividend Aristocrats with track records of increasing annual dividends for at least the last 25 years. Below are 2 groups of Dividend Aristocrats for retirement accounts. The first group has higher yields, above 3½%, with modest capital growth over the last 10 years. Their stocks are up around 10-20% in the last 10 years except for Clorox (NYSE:CLX) which has risen 60% off depressed lows 10 years ago. The second group has Dividend Aristocrats with lower yields, under 3.3%, with stronger records of stock growth in the last 10 years (a difficult time in the stock market). The best appreciation belongs to BCR which almost quadrupled.

Income & Growth Dividend Aristocrats

Price Yield P/E
Leggett-Platt (NYSE:LEG) $20.40 5.5% 15X
Kimberly-Clark (NYSE:KMB) $70.80 4.0% 15X
Abbott Labs (NYSE:ABT) $50.75 3.8% 10X
Johnson & Johnson (NYSE:JNJ) $62.69 3.6% 13X
Clorox (CLX) $66.44 3.6% 16X

Growth Dividend Aristocrats

Price Yield P/E
Emerson Electric (NYSE:EMR) $43.70 3.2% 12X
3M (NYSE:MMM) $75.19 2.9% 12X
Coca-Cola (NYSE:KO) $68.76 2.7% 18X
Dover Corp (NYSE:DOV) $48.42 2.6% 10X
CR Bard (NYSE:BCR) $87.49 0.9% 14X

EMR, MMM and DOV have been increasing dividends annually for more than 50 years. JNJ and KO will join that sub-group next year when their dividends are increased. The rest have been increasing annual dividends for around 40 consecutive years. That means dividends were increased during many recessions including the one in the early 1980s (unusually difficult with negative growth, high unemployment, high inflation and double digit interest rates) and the recent one which is well remembered.

This year, stocks have been slipping and sliding as the European sovereign debt crisis gets worse, growing concerns about the health of the US economy and on massive federal budget deficits. Lower stock prices bring buying opportunities for retirement accounts with long term goals of higher yields. CLX illustrates how lower prices bring opportunities. Today (Sep 26) Carl Icahn ended his offer to buy all remaining CLX shares he does already own because shareholders did not support his offer. The stock drooped $3 (in a strong stock market), raising the yield. This is the kind of move that creates opportunities.

On a personal note, I bought KO for my IRA in 1993. With reinvested dividends, the investment has grown 5 times. The current yield is 13% based on the original investment. Capital growth for different stocks vary, but increasing income will come from higher dividends and a growing number of shares. Long term needs demand long term solutions. Stocks with demonstrated records of growing dividends are needed to produce higher income in the later years of retirement accounts. In the future, I expect growing income from my KO investment.

The ultimate objective for all retirement accounts is high income in the later years, when expenses generally rise. A stream of growing dividends (helped with reinvested dividends) brings higher income in those years. Steady income month after month will be made easier with dividend growers.

Disclosure: I am long KO.