Retirement investing has different meanings for investors. Some have already retired, some are looking to retire in a few years and others expect to retire in many years, maybe decades. Different time horizons make for varied investment objectives. However one basic fundamental is that a stream of growing income is needed to pay expenses during retirement.
The Queen of England doesn't have to worry about saving for retirement. But at the age of 87, she is in good health and her life expectancy is probably 10-15 years. Active life styles have become common for retirees living longer. Retirement can be enjoyed into the 90s and beyond. Greater spending puts an extra burden on earning high income that needs to grow. Gone are the days when retirees just clipped coupons on bonds. Life style was largely sedentary and life expectancy was not as long.
The low interest rate policy by the Federal Reserve has been hard on retirees. Earning attractive rates on invested funds has become difficult without accepting higher levels of risk. Stocks have risen, partially in pursuit of higher yields. Dividends from quality companies with attractive yields share a bonus, dividends rise over time. Dividend Aristocrats, companies with track records of increasing dividends for 25 to almost 60 years, have the best records of raising dividends.
Ten of the most attractive Dividend Aristocrats for growing income are selected below. Dividends have a tax advantage in personal accounts because they are taxed at lower rates than on marginal income. The tables show yields, current dividends and the percentage increase for dividends over the last 10 years:
10 Dividend Aristocrats for Growing Income in Retirement Investing
Company | Price | Yield | Dividend | Dividend % Increase |
Coca-Cola (KO) | $40.28 | 2.8% | $1.12! | 154% |
Emerson Electric (EMR) | $59.78 | 2.7% | $1.64 | 107% |
Exxon Mobil (XOM) | $94.03 | 2.7% | $2.52 | 157% |
Colgate-Palmolive (CL) | $60.08 | 2.3% | $1.36 | 202% |
Illinois Tool Works (ITW) | $71.63 | 2.1% | $1.52 | 223% |
McCormick (MKC) | $71.85 | 1.9% | $1.36 | 177% |
VF Corporation (VFC) | $197.13 | 1.8% | $3.48 | 244% |
Hormel (HRL) | $42.24 | 1.6% | $0.68 | 224% |
WW Grainger (GWW) | $257.31 | 1.4% | $3.72 | 409% |
Brown-Foreman (BF.B) | $72.08 | 1.4% | $1.02 | 241% |
Coca-Cola, the largest nonalcoholic beverages worldwide, has the best known brand in the world. Coca Cola beverages are served in virtually every country on earth and it will invest $30 billion for expansion over the next 5 years.
Emerson Electric supplies product technology and engineering services worldwide. The 5 business segments are: Process Management, the Industrial Automation, the Network Power, Climate Technologies, and Tools and Storage. The compound annual growth rate for dividends since 1956 was 11%.
Exxon Mobil is the premier oil producer of oil and gas in the world. With the largest market cap in the world, it descends from Rockefeller's Standard Oil Company with over 31,000 wells and has a resource base of 87 billion oil-equivalent barrels.
Colgate-Palmolive markets consumer products around the w! orld. Com! pany products are in 4 divisions: Oral, Personal, Home Care and Pet Nutrition. Global volume rose 24% (with no annual declines) in the last 6 years.
Illinois Tool Works sells industrial products and equipment worldwide. Products are used in deep-sea oil rigs, aerospace technology, bridges and wind turbines, healthcare and at home. Revenue has doubled to almost $18 billion since 2000.
McCormick & Company markets spices, seasoning mixes, condiments, and other flavorful products to retail outlets, food manufacturers, and foodservice businesses. Consumers buy spices to enjoy the taste of food. The compound annual rate over the last 10 years was 7% for sales and 9% for EPS.
VF Corp has grown to become the largest apparel company because it acquired quality leisure companies in the last 10 years. Popular brands include: The North Face, Timberland, Vans, Wrangler, Lee and Timber Creek. The stock is up five fold in the last decade.
Hormel Foods sells consumer-branded meat and food products. There are 5 segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, Specialty Foods, and International & Other. EPS grew at an 11% rate since 2007.
WW Grainger is America's leading broad line supplier of maintenance, repair and operating products, with expanding global operations. Its stock and dividends grew fivefold in the last 10 years.
Brown-Forman has been selling alcoholic beverages for more than 14 decades. Popular brands include Jack Daniels, Gentleman Jack, Southern Comfort and Finlandia sold in 135 countries. EPS has grown at a 13% rate over the last 35 years and a toast was made last week at the annual meeting to another record year.
All 10 companies have financial strength which allowed them to raise dividends through good years and bad. In the difficult recession 5 years ago, many highly regarded companies ended their dividend streaks (one with a 50 year streak) because of financial difficulties. In October 1987, the stock market had a brutal sello! ff. But a! ll these companies were raising their dividends. XOM, MKC and BF.B have streaks of roughly 30 years; the others have 40-57 year streaks.
Continuous, large dividend increases accompany higher stock prices. The first 5 stocks have at least doubled in the last 10 years. The others at least tripled and the right column in the table shows they have had the largest dividend increases. Capital appreciation accompanies sustained dividend increases which have become more important since 2000.
Since the market crashed in 2000, capital appreciation has been spotty. The Dow started 2000 at 11,497 and just closed at 13,520, up a meager 18%. During that time these companies have excellent records of raising dividends and stock growth, key for successful retirement investing.
Yields on these companies are about 1+ percentage points lower than on higher yielding Dividend Aristocrats. While all Dividends Aristocrats share a commitment to reward stockholders with growing dividends, these companies should continue to have superior dividend increases based on their track records.
Retirees want to be able to enjoy life for more years than in the past. But expenses keep going up. Years ago, growth in retirement income was not considered very important. Today income growth has greater value for retirees who want a better life in later years. Growing income deserves more respect in retirement investing.
Disclosure: I am long KO, VFC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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