5 Best Dividend Stocks for Retirement Income

Best Dividend Stocks for Retirement Income 

One of the most important aspects of a successful retirement is earning a reliable and steady income source. One proven method, regardless of where you are in your life, is by owning high-quality dividend stocks. These will provide a steady income source for your expenses and add to your bottom line with gains from the shares, without having to sell them. Today’s article will explain how to retire off dividend stocks, as well as my favorite income stocks for retirement.

How to Retire Off Dividend Stocks

Think of dividend growth stocks as being no different from the salary you would earn working for a company. As an employee, you make an effort and are compensated with money in return. Like with the workplace, there will most likely be an annual review to go over how you have helped the company grow.

The review is also done to ensure that the income earned keeps up with the rate of inflation–think of the increases as like a raise. You can choose what to use this money for, be it a vacation, living expenses, or–as is the focus of this article–save it for retirement.

That said, dividend growth stocks do differ from a traditional salary in some ways. For one, you don’t have to commit the amount of time to them that you would a regular job. Second, your income is based on the company’s earnings and come in the form of a dividend rather than a paycheck.

The previously mentioned review is normally done annually to determine how the company has performed. And if it has done favorably, then the dividend would be increased.In relation to this dividend, you of course want to earn income that is in line or higher than inflation. This will ensure that your purchasing power in retirement will remain strong.

Another major benefit of using dividend growth stocks is that, as noted, the shares do not have to be sold to profit. This means that as long as the business is generating consistent income, then the share price should increase over time. Also, the more time spent in the investment, the higher the average yield on the initial purchase price. And if the shares are never sold or held for a very long time, you’ll see a faster rate of return on the invested capital.

Another important aspect to consider is the actions of management, which will make clear whether or not they want to share the rewards with shareholders. You should also note the investment decisions being made, and if they’re for the best.

Below is a list of my picks for the best dividend stocks to retire on.

Top Five Dividend Stocks for Retirement

1. Lowe’s Companies, Inc.

Lowe’s Companies, Inc. (NYSE:LOW) is a very unique retailer, selling home improvement products and services. The company has locations in the U.S. (which accounts for most of the company’s sales), Canada, Mexico, and as far as Australia, many via partnerships.

LOW stock is right in the sweet spot of its market in the U.S., given the constant need for home improvement and refurbishing. According to the U.S. Census Bureau, approximately 69% of all houses in the U.S. have been standing for over 35 years. As these homes’ infrastructure gets even older, there is a higher chance of them needing repairs and/or maintenance.

While consumers can always delay any home renovation projects, one day there will be no choice but to repair or upgrade the house. And with consumer spending being higher than in previous years, they’re more likely to make repairs sooner rather than later. (Source: “Selected Housing Characteristics 2011-2015 American Community Survey 5-Year Estimates,” United States Census Bureau, last assessed May 9, 2017.)

Lowe’s is a great stock opportunity to consider within your dividend portfolio for retirement. Based on its past, LOW stock will continue paying a constant dividend, which has grown for 54 consecutive years. Over the past five years alone, the average growth rate has been 20.26%. This would outpace the rate of inflation in any given year and, most of all, benefit your bottom line for your retirement needs.

2. JPMorgan Chase & Co.

JPMorgan Chase & Co. (NYSE:JPM) is one of the largest financial services companies in the U.S. The business is divided into four segments: Consumer and Community Banking, Corporate and Investment Banking, Commercial Banking, and Asset Management.

Each of the four divisions are greatly impacted by interest rates. This would include both the current benchmark interest rate and the direction of the rate movement, which is set by the U.S. Federal Reserve. The higher the current interest rate and the upward trend, the most beneficial it is for JPMorgan’s revenue and net income.

Higher interest rates also mean the banking side of the business would see more demand for various products, such as saving accounts, certificates of deposit (CDs) investments, and loans. Meanwhile, the investment and asset management side of the business should see an increase in the total amount being managed and invested on behalf of clients.

Since 2015, interest rates have been on an upward trend and have come off their historical low levels. With interest rates so low, there is a very high possibility of seeing more rate hikes rather than cuts. A rate hike occurs because the Fed believes that the economy is improving and could withstand higher rates. This signals to investors that they should be more confident with making investments into American companies. (Source: “United States Fed Fund Rates,” Trading Economics, last accessed May 9, 2017.)

So you may be wondering how a higher interest rate can benefit JPM stock. Well, the banking divisions’ overall margins (the net interest margins) will improve. As for the investment and asset management businesses, they should see more inflow and asset growth. There should be more inflow of capital because when interest rates are increasing, it means that the economy is improving and people want to invest more.

Since the economy is improving and investors want to invest more into the markets, the current asset portfolio should see a boost as well. And as the assets under these divisions increase, so should revenue, because there is a fee charged on total managed funds. All this should impact the stock in a positive way, since more revenue would be expected.

JPM stock also pays a quarterly dividend, which has seen 900% growth over the past six years. With net margins expected to improve across the entire business, there is a high possibility of continued dividend growth.

 3. Walgreens Boots Alliance Inc

Walgreens Boots Alliance Inc (NASDAQ:WBA) is a pharmacy health and well-being company. The business focuses on providing pharmacy services around the world, as well as on its beauty stores, eye health practices, and the beauty products it sells under its various brands.

There are three reasons why WBA is, in my opinion, one of the best dividend stocks to own in retirement. The first is the current demand for the company’s pharmacy services. While seniors already make up most of this segment’s clientele, the U.S. senior population is expected to go from under 15% (in 2012) of the total population to approximately 20% (in 2050), according to the U.S. Census Bureau. More seniors needing medication will add to recurring revenue. (Source: “An Aging Nation: The Older Population in the United States,” United States Census Bureau, May 2014.)

Walgreen Boots also enjoys being recession-proof. The pharmacy portion of the business will see sales no matter how the economy is performing, as will its beauty products. This is because these products are essential for daily life and are quite inexpensive to purchase. This is reflected in these goods’ revenue, which has been growing year over year, including during the 2009 recession.

The last reason to consider WBA stock is because of its dividend, which has been growing over the past 41 years. The payout ratio is 29%, meaning $0.29 is paid out to investors for every $1.00 of earnings. While the company keeps the remaining 71% for its own needs, it could also be put towards dividend hikes.

4. Wal-Mart Stores Inc

Wal-Mart Stores Inc (NYSE:WMT) is a company that likely needs no introduction. With its worldwide retail businesses and wholesale services, Wal-Mart is one of the largest retailers in the world for both physical locations and e-commerce.

Even though physical stores may seem like an old business model, Wal-Mart is working to run more efficient and profitable locations. Methods used include closing less profitable locations, opening “Walmart Superstores” in city suburbs, and reducing store sizes in more condensed areas.

The company has also focused on expanding its e-commerce business. This is a major focus for the overall business since the Internet is becoming the primary means through which customers make purchases. Also, the growth from this side of the business is in the double digits, compared to the single digits for physical store sales.

As part of this initiative, Wal-Mart purchased online retailed Jet.com, Inc. in 2016. Aside from improving online sales figures, Jet.com will contribute to the bottom line of Wal-Mart’s financial statements and allow for cross-selling. (Source: “Walmart Agrees to Acquire Jet.com, One of the Fastest Growing e-Commerce Companies in the U.S.,” Wal-Mart Stores Inc. August 8, 2016.)

Running a more efficient business this should benefit WMT stock. The share price should be affected in a positive manner, not to mention the growing dividend payment; currently, approximately half of earnings are being paid as a dividend. The dividend has increased for 42 consecutive years, a trend that can continue based on the above, making WMT stock one of the safe dividend stocks for retirees.

5. 3M Co

3M Co (NYSE:MMM) is a company with a presence around the world. It sells many different products in areas such as automotive equipment, paper and printing, electronics, and construction, just to name a few.

3M is one the best dividend-paying stocks for retirees. It is a member of the S&P 500 Dividend Aristocrat Index, being a Fortune 500 company with over 25 consecutive years of dividend hikes. The company is also a “dividend king,” having increased its dividend for over 50 straight years. 3M has raised its dividend every February since 1959.

The dividend is not the only method by which shareholders have been paid. The company also regularly engages in share repurchase programs, a tax-efficient method of rewarding shareholders, making their shares worth more of the company by buying outstanding shares back. The company signed off on a $10.0-billion program to replace the prior one. (Source: “3M Increases Dividend 8 Percent; Authorizes $10 Billion Share Repurchase Program,” 3M Co, February 2, 2016.)