5 Dividend Champions To Consider For Retirement Income

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 |  Includes: PBI, PEP, PNR, PNY, PPG
by: Dividend Kings

It’s this author’s firm belief that when it comes to investing, income is more important than capital gain, irrespective of asset class. The market gyrations of 2011 certainly showed how quickly capital gains can be wiped out. With banks paying nothing and 30-year Treasuries paying close to nothing, your money in safer in an array of solid dividend paying companies, which were touched upon in this series.

Over this course, I have covered a fair amount of stocks in many industries, which should serve as a starting point.

Pentair Inc. (NYSE:PNR): The dividend has been increased for 35 consecutive years. The yield is 2.4% and the annual payout is $0.8. The quarterly payout was increased by 5.26% to $0.20 with the payout ratio at 37.04%. The growth rate over the last decade is 8.9%.

PNR’s shares trade at a trailing price/earnings multiple of 15.7, which is a slight premium to Emerson Electric (NYSE:EMR) at 14.5. The stock ended 2011 just over 5% down.

Income investors will certainly be enthused that the first-quarter dividend is set to be hiked by 10%, due in part to the company’s strong cash generation ability but EMR may be a better dividend play because of a lower valuation multiple, a yield of 3.4% with a $1.60 payout and a higher payout ratio of 43%.

PepsiCo Inc. (NYSE:PEP): The dividend has been increased for 39 consecutive years. The yield is 3.1% and the annual payout is $2.06. The quarterly payout was increased by 7.29% to $0.1250 with the payout ratio at 51.63%. The growth rate over the last decade is 13%.

The stock ended 2011 just about even and trades at a trailing price/earnings multiple of 16.7, a premium compared with Coca Cola Company (NYSE:KO) at 12.8. PEP has a dividend payout ratio history that is rare, the ratio increased from 39% in 2001 to its current level.

I would buy both stocks at their current valuation levels. Their growth prospects are promising given their emerging market presence combined with their products' strong brand equity/loyalty.

Piedmont Natural Gas (NYSE:PNY): The dividend has been increased for 33 consecutive years. The yield is 3.5% and the annual payout is $1.16. The quarterly payout was increased by 3.57% to $0.29 with the payout ratio at 73.42%. The growth rate over the last decade is 4.4%.

The stock finished 2011 on a high note, ending more than 20% up. It trades at a trailing price/earnings multiple of 21.2, again reflecting investor eagerness for stocks with above-average yields. This trend seems set to continue.

With earnings dropping 20% last year, paying a premium valuation for a utility stock is not wise. The stock is near its 52-week high and I would wait for the valuations to fall to around the 14 to 16 (trailing) price/earnings multiple range before analyzing this stock in further detail.

Pitney Bowes Inc. (NYSE:PBI): The dividend has been increased for 29 consecutive years. The yield is 7.8% and the annual payout is $1.48. The quarterly payout was increased by 1.37% to $0.37 with the payout ratio at 89.16%. The growth rate over the last decade is 2.5%.

This stock is cheap. It trades just above its 52-week low at a trailing price/earnings multiple of 9.51 and slightly cheaper than Siemens (SI) and Xerox (NYSE:XRX) at 10.9, which also remains a great value. The shares finished 2011 in the red, ending more than 20% lower.

The dividend yield is probably the only factor that will aid your total return with this stock. Earnings growth is likely to grow fractionally due to restrained spending on Pitney Bowes' core business equipment by many of its customers. The thing that concerns me is the high payout ratio when long-term debt to capitalization sits around 89%.

Whilst I can understand some investors may jump at this stock, those considering it as a retirement option are advised to look elsewhere.

PPG Industries Inc. (NYSE:PPG): The dividend has been increased for 40 consecutive years. The yield is 2.7% and the annual payout is $2.28. The quarterly payout was increased by 3.64% to $0.57 with the payout ratio at 33.98%. The growth rate over the last decade is 3.1%.

2011 was almost flat for PPG’s shares, ending the year 2.6% higher. The stock trades at a trailing price/earnings multiple of 12.6. This stock is attractively valued as it trades around 11.7X my earnings estimate of $7.25 for 2012. Of particular importance, the company managed to increase prices in all its business units, another feather in its cap.

The finances are also in healthy shape with the balance sheet boasting substantial free cash flow, a good sign for dividend hikes and hopefully a higher payout ratio added into the mix.

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