Increasing investment values for retirement funds has been made more difficult since 2000, with volatile and uneven returns in the stock market followed by the Federal Reserve lowering interest rates to record low levels and guiding that low interest rates will continue for at least another 2 years. Managers of public employee pension funds who manage hundreds of billions of dollars are using assumed interest rates of 8% (or less) after the inconsistent results in recent years. These are professionals who control money for retiree benefits.
Volatile stock markets with sideways trading in recent years can continue with the lingering euro debt mess and sluggish US economic recovery which is facing tax increases at the start of 2013. Dividends with a higher degree of reliability and growth are getting more attention in pension funds.
Traditional investments for income are losing their appeal. Government securities, investment grade bonds and bank deposits have meager yields which are unsatisfactory in retirement accounts. However dividends from quality companies can provide attractive and high yields. Higher yields go a long way towards earning a target rate of return in retirement funds. But all companies paying dividends are not the same. The best are Dividend Aristocrats which have increased dividends for a minimum of the last 25 years. Those dividends continued through bad times, including the difficult recession in 2008-9 when there were many dividend cuts.
13 of the highest yielding Dividend Aristocrats with yields above 3% are selected below. Dividend Aristocrats with yields above 4% were excluded because of a small amount of additional risk associated with higher yields. In addition, they typically give only token annual dividend increases. Stocks with less than 3% yields are excluded because their yields are not sufficient for retirement accounts seeking income.
13 Dividend Aristocrats for Retirement Investing
Sysco Corp. (SYY)
Clorox Company (CLX)
Johnson & Johnson (JNJ)
Procter & Gamble (PG)
RPM Intl (RPM)
Emerson Electric (EMR)
Abbott Labs (ABT)
Genuine Parts (GPC)
Walgreen s (WAG)
Air Products (APD)
Besides higher income levels, these stocks can bring capital appreciation. KMB and ABT are up more than 15% YTD, investors were partially attracted by their generous yields. ABT is trading higher because of its intention to split into 2 companies to increase shareholder value. KMB has been known as a 4+% yield stock for many months and that has received recognition.
All 13 companies have financial strength which has resulted in numerous dividend increases. KMB, PG, EMR and GPC are the leaders with streaks of increasing dividends for half a century or more. Most of the rest have streaks of at least 40 years. These companies are committed to reward shareholders with total return, capital appreciation and dividends, through thick or thin.
Capital appreciation since the market crash in 2000 has been inconsistent. The Dow Jones Industrials sold off sharply twice in the last 12 years with limited net appreciation in that period. About 10 years ago I recommended to my friend to buy Coca-Cola (KO), another Dividend Aristocrat, and she caught its low price. Since then the stock has doubled (plus dividends). That was an unusually good investment in the last decade. Others who did not buy at the low have not done so well because appreciation with quality companies has been more difficult than in the past. Meanwhile dividends continued and increased for these companies. Annual dividend increases have become a way of life for them.
Past goals of earning 10% on retirement money may be overly optimistic with an unreliable stock market. Most appreciation came from capital gains. Professional pension fund managers are not that optimistic. Receiving rising dividends before and during retirement feels good and that should continue independent of stock market gyrations. And a stream of increasing dividends can bring higher stock prices, the primary goal for successful retirement investing.
Disclosure: I am long KO.