8 Of The Best High Yielding Stocks For Retirement Accounts

|
 |  Includes: CLX, EMR, HCP, JNJ, KMB, LEG, SYY, T
by: Avi Morris

The prime objective in retirement accounts is earning high, reliable and growing income. But volatile stock prices and low yields make earning increased income difficult. The Federal Reserve is keeping interest rates at or near record low levels for at least 2 years. The yield on the 10 year Treasury is near a record low 1.4% and short term notes yield almost nothing as demand for Treasury securities is virtually unlimited around the world.

Investment grade corporate bonds are traditional investments for earning higher income. But today, the yields are only 2-5%. High yield (junk) bond funds have higher interest rates, around 8%, because junk bonds have below investment grade credit ratings. The interest rate spread over the 10 year Treasury bond is more than 600 basis points, wider than narrowest spreads in the past of 450-500 basis points. While not for nervous investors, these rates can persist for some time.

MLPs have an outstanding record of growth, although they are primarily thought of as yield securities. The Alerian MLP Index (AMZ) grew at an annual compounded growth rate of 8½% since 1995. But they are better known for high yields (which have tax advantages in personal accounts). Rising values have reduced the index yield to 6.2%.

REITs have been considered yield stocks. Over 10 years ago, double digits yields were available on select REITs. Rising stock prices lowered yields and in the 2009 recession, many REITs cut dividends. Then dividends rebounded and yields are currently 3-4%. On the 1099s, many REITs classify a portion of dividends as non-taxable or capital gains.

The Dow Jones Industrials is up 13% since the end of 1999 while Nasdaq has fallen 29%. Capital appreciation has not been as helpful for increasing wealth and income as in the past. Stock yields have become more attractive. Dividend increases bring higher retirement income in later years when it is most needed. 8 of the highest yielding Dividend Aristocrats (have raised annual dividends for at least the last 25 years) were selected. Besides generous yields, the dividends are growing. Dividends were raised during the toughest recessions, important for those who depend on rising income. Valuations are reasonable with P/Es around 15X.

Company

Price

Yield

Leggett & Platt (LEG)

22.49

5.0%

AT&T, Inc. (T)

36.30

4.8%

HCP, Inc. (HCP)

46.44

4.3%

Sysco Corp. (SYY)

28.81

3.7%

Johnson & Johnson (JNJ)

68.74

3.5%

Kimberly-Clark (KMB)

85.72

3.5%

Clorox Company (CLX)

72.87

3.5%

Emerson Electric (EMR)

46.69

3.4%

Click to enlarge

The first 4 have had modest dividend increases during the last 5 years and that trend may continue for some time. JNJ, KMB, CLX and EMR have increased dividends at least 40% since 2007:

Successful retirement investing needs to raise income for rising expenses during retirement. A track record of growing dividends can bring higher income. Only a handful of companies qualify as Dividend Aristocrats in a universe of nearly 20,000 companies. Younger investors looking to grow investment worth (along with income) and seniors who are more concerned with raising current income should find investing in these Dividend Aristocrats a good way to increase retirement income.

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