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Retirees are living longer with greater expenses and that has changed investment thinking for retirement accounts. Annual income has become more important to pay for higher expenses that can grow substantially in later years. Even for those who have already retired, rising expenses make income growth more important than in the past.

The low interest rate environment is making retirement investing more difficult and low rates will continue through at least the end of 2014. Growing uncertainties over European sovereign debt has increased demand for safety. Risk-averse thinking has caused bond prices (Treasuries and investment-grade debts) to soar and yields plunge to record lows.

While these debts have virtually no business risk, interest rates are flat over the life of bonds and they mature at par with little or no appreciation. In addition, there could be a loss of income when proceeds are reinvested in new bonds with lower coupons (the case today).

Investors have been searching for ways to raise investment income. Junk bond funds yield around 8%. Yields are near record lows, but the spread over the 10-year Treasury is around 600 basis points, above previous low levels of 450-400 basis points. Investors willing to accept added risk in pursuit of higher yields are buying junk bond funds. But over the long run, dividends have a downward bias

MLPs and REITs have high yield securities with tax advantage yields in taxable accounts. In the last decade, rising stock prices for REITs caused yields to plunge toward 3%-4%. MLPs had a spectacular rise off recession lows in early 2009, but lost favor this year. The Alerian MLP Index has fallen back to where it was in October, increasing its yield to nearly 7%.

Stocks with dependable dividends remain a reliable standby for retirement investing. The best are the Dividend Aristocrats (they raised annual dividends for a minimum for the last 25 years). Fifty-one stocks are in the S&P 500 (along with a few others that have smaller market caps).

Eight of the best were selected with excellent yields of roughly 3% and the promise of more dividend growth. They increased dividends for at least 30 consecutive years (MMM and KO have streaks of at least half a century). Dividend growth since 2007 has been excellent. They are at least 50% higher (except for MMM, which only raised the dividend 23%).

  1. Air Products and Chemicals (NYSE:APD) provides atmospheric gases, process and specialty gases, performance materials and equipment worldwide. The stock is $76.88 and yields 3.3%.
  2. McDonald's (NYSE:MCD) is known by just everybody in the U.S. and many around the world know. The stock is $86.71 and yields 3.2%.
  3. Pepsico (NYSE:PEP) sells carbonated and non-carbonated beverages, dairy products and snack foods worldwide. The stock is $67.51 and yields 3.2%.
  4. Automatic Data Processing (NASDAQ:ADP) is one of the world's largest providers of business outsourcing solutions. The stock is $50.92 and yields 3.1%
  5. Walgreen's (WAG) has the largest chain of drug stores in the US. The stock is $29.93 and yields 3%
  6. Exxon Mobil (NYSE:XOM) is the largest energy company on earth. The stock is $77.92 and yields 2.9%.
  7. Coca-Cola (NYSE:KO) is the largest non-alcoholic beverage company in the world, aggressively expanding globally. The stock is $73.09 and yields 2.8%.
  8. 3M (NYSE:MMM) is a global diversified technology company organized in 2 divisions, Industrial and Transportation. The stock is $82.85 and yields 2.8%.

Record low interest rates have made it difficult to earn high yields and growing income in retirement funds. The above stocks have much better values after the market sell-off in the last month. Long-term records of business success, highlighted by the ability to raise dividends through a very difficult recession three years ago, make these stocks attractive for investors looking for higher yields and growing dividends.

Disclosure: I am long KO.

Source: 8 Outstanding Stocks For Retirement Investing In Troubling Times