6 Retirement Stocks For The Next Decade

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Includes: ABT, JNJ, KMB, MDLZ, MDT, PEP
by: Bear Fight

Retirees focused on generating yield from their savings have sought dividend-paying U.S. equities as short-term rates remain low. Retirees looking to protect their portfolio from dividend cuts should review a company’s payout ratio to assess the health of its dividend. Unlike fixed-income securities, dividend-paying equities can experience cuts to dividends due to falling earnings.

A company’s dividend payout ratio is the dividend per share/earnings per share. A high ratio indicates company’s reliance on stable and consistent earnings to pay the dividend. Conservative retirees should focus on companies with payout ratios less than 65%. Modest payout ratios of these large capitalization dividend paying equities will allow these companies to maintain and grow their dividends despite a weak and volatile economy.

Abbott Laboratories (NYSE:ABT)

  • Price to Earnings: 19.3x
  • Dividend Yield: 3.4%
  • Debt / EBITDA: 1.5x
  • Market Capitalization: $87.0 billion

Medtronic, Inc. (NYSE:MDT)

  • Price to Earnings: 12.3x
  • Dividend Yield: 2.5%
  • Debt / EBITDA: 1.8x
  • Market Capitalization: $41.1 billion

Kraft Foods Inc. (KFT)

  • Price to Earnings: 20.5x
  • Dividend Yield: 3.1%
  • Debt / EBITDA: 3.4x
  • Market Capitalization: $66.3 billion

PepsiCo, Inc. (NYSE:PEP)

  • Price to Earnings: 16.4x
  • Dividend Yield: 3.2%
  • Debt / EBITDA: 2.0x
  • Market Capitalization: $102.2 billion

Johnson & Johnson (NYSE:JNJ)

  • Price to Earnings: 15.8x
  • Dividend Yield: 3.5%
  • Debt / EBITDA: 0.9x
  • Market Capitalization: $177.0 billion

Kimberly-Clark Corporation (NYSE:KMB)

  • Price to Earnings: 17.4x
  • Dividend Yield: 3.9%
  • Debt / EBITDA: 1.8x
  • Market Capitalization: $28.6 billion

Payout Ratios

Company

2008

2009

2010

LTM Period

Abbott Laboratories

44.5%

42.0%

57.7%

63.2%

Medtronic

40.7%

29.3%

31.3%

29.3%

Kraft Foods

57.7%

56.7%

52.9%

63.2%

Pepsico

49.4%

45.9%

47.1%

48.6%

Johnson & Johnson

38.8%

43.4%

43.5%

53.4%

Kimberly-Clark

56.2%

52.3%

57.8%

65.0%

Click to enlarge

Disclosure: I am long ABT, MDT, JNJ.