designer491
I recently published an article titled "If I Had to Retire with Only Five Stocks, It Would Be These." In that article, I highlighted five high-quality stocks that offered a very attractive combination of current dividend income along with dividend sustainability through various market cycles, as well as the potential to continue growing that dividend at a rate that meets or even beats inflation over the long term. Those five stocks are Enterprise Products Partners (EPD), Brookfield Renewable Partners (BEP)(BEPC), Brookfield Asset Management (BAM)(BAM:CA), W. P. Carey (WPC), and Blackstone Secured Lending Fund (BXSL). Unfortunately, only one of those stocks meets the 25-year-plus payout growth streak qualification necessary to be considered a Dividend Aristocrat, and even that one, Enterprise Products Partners, as an MLP, is not technically included in the list of Dividend Aristocrats (NOBL). However, for the purposes of this article, which is exploring a hypothetical 10-stock retirement portfolio made up entirely of Dividend Aristocrats, I will classify it as one given that what I'm really concerned about is the dividend growth streak and not some other aspect of the company that qualifies it to belong in a certain index or not.
Without further ado, here are the 10 Dividend Aristocrats that I would buy if I were limited to only holding 10 stocks, they had to be Dividend Aristocrats, and they had to have the potential to fund my living expenses indefinitely, while also growing at a rate in aggregate that meets or beats inflation over the long term.
#1. Enterprise Products Partners
As already discussed, this is one of my top picks if I were to retire with only five stocks and actually is my top pick if I had to retire with only one stock. I really like Enterprise Products Partners as a retirement stock because it offers a very attractive approximately 7.5% distribution yield that is covered 1.7 times by distributable cash flow. It also has a stellar balance sheet with the best credit rating in its sector at A-, backed by a very low leverage ratio of 3.0 times, which should only decrease further as it brings its $6.9 billion growth capital backlog online in the coming quarters and years. In addition to giving it significant flexibility on its balance sheet, this growth backlog should also continue to drive mid-single-digit distribution growth per year, helping to preserve and even increase the purchasing power of its already hefty payout.
Moreover, its business model is battle-tested and has proven to generate returns on invested capital of 10% or higher through all sorts of market cycles. Putting it all together, Enterprise Products Partners not only delivers significant current income to help meet my living expenses but also should continue to grow that income at an inflation-beating rate over the long term, regardless of the economic conditions we face.
#2. Realty Income (O)
The next Dividend Aristocrat that I would be interested in holding in this portfolio is Realty Income. I like Realty Income for many of the same reasons that I like Enterprise Products Partners. It has an A- credit rating, a very well-diversified and defensive business model that is likely to generate stable cash flows through all sorts of business cycles. Moreover, it has a very impressive dividend growth track record and continues to grow its dividend at a rate that should either meet or slightly beat inflation over the long term. Last but not least, its triple net lease business model, combined with its enormous and well-diversified property portfolio, should enable it to be extremely defensive regardless of the economic environment. Given the 6% current dividend yield, Realty Income is a great stock to include in a retirement portfolio.
#3. Amcor (AMCR)
The next Dividend Aristocrat that I would want to include in my portfolio is Amcor. Amcor has a competitively positioned and well-diversified portfolio of products and customers, giving it fairly stable performance through cycles as well as numerous growth opportunities as a global leader in packaging solutions for industries ranging from food and beverages to pharmaceuticals. Additionally, it is a consistent dividend grower and has done so at paces that should be able to continue to grow at a rate approximately in line with inflation over the long term. Moreover, its aggressive buyback program and successful track record of making accretive acquisitions should fuel earnings per share growth that far exceeds inflation over the long term. Given that it has a well-positioned, competitive-edge business model and an investment-grade balance sheet, an attractive 5.1% current dividend yield supplemented by a generous share repurchase program, Amcor looks like a great long-term compounder as part of a well-diversified portfolio of Dividend Aristocrats for someone focused on steadily growing income.
#4. Chevron Corporation (CVX)(CHEV:CA)
Another Dividend Aristocrat that I would like to add to my portfolio is Chevron Corporation. With a 4.2% forward dividend yield, a strong dividend growth rate that easily beats inflation in recent years, and its status as a blue-chip energy company with a very strong balance sheet, Chevron Corporation serves as an excellent inflation hedge for my portfolio while still generating very attractive current income.
#5. Federal Realty Investment Trust (FRT)
Another Dividend Aristocrat that I'd like to add to my portfolio is Federal Realty Investment Trust. It owns many grocery-anchored shopping centers that make it quite defensive, coupled with a very strong investment-grade balance sheet and a 4.4% current dividend yield. Its strong management team also makes it a very reliable dividend payer that should continue to grow its already attractive dividend at a solid clip for years to come. Moreover, it is positioned to weather all sorts of economic environments.
#6. International Business Machines (IBM)(IBM:CA)
Another Dividend Aristocrat that I would want to add to this hypothetical portfolio is IBM. While IBM is not nearly as exciting of a tech company as some of the mega-cap companies, it is still a strategically positioned company with a fairly strong moat around its existing business. It is also one of the highest-yielding major plays on artificial intelligence available on the market today. Given its fairly attractive dividend yield of nearly 4%, growth potential from its involvement in artificial intelligence and other technology platforms, as well as its commitment to growing its dividend each year, IBM is another worthwhile component of a Dividend Aristocrat-only portfolio that helps provide nice diversification while still getting a decent yield.
#7. Johnson & Johnson (JNJ)(JNJ:CA)
Another Dividend Aristocrat that I want to add for my healthcare exposure is Johnson & Johnson. Johnson & Johnson is a very well-diversified healthcare company with a very impressive track record of consistently growing its dividend through thick and thin. While its 3.3% forward dividend yield is not extremely exciting, it is extremely reliable, as the company has a very strong balance sheet and continues to grow its dividend at an annual pace that should exceed inflation for years to come.
#8. Coca-Cola Company (KO)
Another Dividend Aristocrat that I would add to this hypothetical portfolio to give me my consumer product exposure is The Coca-Cola Company. It's a great company that Warren Buffett has famously said he would never sell a share of. With a 3.1% forward dividend yield, a very competitively positioned and fairly defensive business model, a strong balance sheet, and a dividend growth pace that should continue to exceed inflation for the foreseeable future, it makes a nice diversification play that helps to create a more defensive posture for my portfolio as well.
#9. Consolidated Edison (ED)
Rounding out this portfolio of 10 stocks, 10 Dividend Aristocrats, are two utility stocks. Consolidated Edison is the first one, as it posts very solid dividend growth rates that should meet or exceed inflation for the foreseeable future, alongside a fairly attractive 3.5% dividend yield supported by a highly defensive regulated utility business model.
#10. NextEra Energy (NEE)
Next on the list is NextEra Energy, which offers a lower dividend yield of 2.73% but operates in a very high-growth jurisdiction primarily focused in Florida, where it is a leader in renewable energy. This also gives it a more exciting growth profile. It is also expected to grow its dividend at a high single-digit rate moving forward, making it a nice dividend growth engine for the overall portfolio and helping its fairly lackluster dividend yield grow into a much more impressive one over time.
Investor Takeaway
By building a portfolio that is diversified across the real estate, industrials, energy, technology, utilities, healthcare, and consumer products sectors, filled with Dividend Aristocrats that are known for having very battle-tested, resilient business models able to generate rising earnings and thereby dividends over multi-decade periods despite all sorts of technological and economic disruptions being thrown at them, retirees can sleep fairly well at night knowing that their income is likely to continue being paid out while also growing at a rate that meets or exceeds inflation.
| Stock | Yield |
| EPD | 7.5% |
| O | 6.0% |
| AMCR | 5.1% |
| CVX | 4.2% |
| FRT | 4.4% |
| IBM | 4.0% |
| JNJ | 3.3% |
| KO | 3.1% |
| ED | 3.5% |
| NEE | 2.7% |
| Average | 4.4% |
With this particular portfolio, assuming an equal weighting in each position, investors can enjoy a dividend yield that should be enough to cover their living expenses if following the 4% rule while also expecting their dividend payouts to grow at a solid mid-single-digit clip each year that should exceed the rate of inflation over the long term.
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