In this article, we will discuss some of the best dividend stocks for an early retirement portfolio.
As retirement approaches, ensuring financial stability becomes increasingly important for investors. Among the available investment options, consistent dividend payments are especially attractive due to their dependability and security. Dividends, which represent a portion of a company’s earnings paid out to shareholders, provide a reliable income stream.
Dividend stocks are well-suited for retirees because they also offer protection during challenging times. A report by Morningstar highlighted that dividend-stock funds were well-prepared to endure the tech stock crash from 2000 to 2002, as they had minimal exposure to the sector. During that period, the Vanguard Total Stock Market Index suffered a cumulative loss of nearly 44%, largely due to significant declines in its growth stocks, whereas dividend stock funds experienced only about a third of that loss.
Also read: 10 Best January Dividend Stocks To Buy
Due to their solid long-term performance in the past, dividend stocks are becoming a vital part of a well-rounded retirement portfolio for many investors. Strategically chosen dividend-paying stocks can offer stability during market declines and enhance gains during upswings by providing regular income that helps mitigate losses and amplify returns. In addition, they offer a hedge against inflation, which has become a growing concern due to rising costs of essentials like food and energy. Several top-performing companies have consistently increased their dividend payouts over decades. David Giroux, a portfolio manager at T. Rowe Price who oversees the firm’s capital appreciation strategy, shared insights on dividend stocks in an interview with Barron’s. Below are some of his remarks:
“To have a retirement portfolio that has a significant component of stocks with attractive dividends makes a tremendous amount of sense. If the average company in the market can grow its earnings at 7% to 8% a year, your dividends should be growing at a similar rate.”
Analysts point out that while income and growth are crucial for retirees to maintain financial stability during a potentially long retirement, this approach has its limitations and may not be suitable for everyone. They advise building a portfolio that is diversified across various sectors and includes companies with strong cash reserves to support stock buybacks. Dave King, a senior portfolio manager at Columbia Threadneedle Investments, stressed the importance of straightforward diversification in an interview with Barron’s. He recommended holding at least eight stocks from different sectors, suggesting that while diversification doesn’t need to be overly extensive, it should include more than just a few stocks—ideally more than five, with representation from each major sector. King also advised that when selecting stocks, investors should not rely too heavily on Wall Street research. Instead, they should prioritize fundamental, time-tested factors like a company’s credit rating or the reputation of its management, which can provide key insights into the stability of its dividend payments.
A report by Franklin Templeton highlighted that over the past decade, dividends for the broader market index have steadily risen, with an average annual increase of just over 7%. In strong market periods, dividends have enhanced total returns, while in tougher years like 2020 and 2022, when returns were flat or negative, dividends provided stability and helped strengthen portfolio resilience.
Our Methodology:
For this list, we used a screener to select dividend stocks that have shown at least 10 years of dividend growth and are spread across various industries, making them suitable for a retirement stock portfolio. From the initial selection, we chose ten stocks, each from a different industry, all with yields of at least 2%. The stocks are ranked in ascending order of their dividend yields, as of January 6. We also considered hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
10. Atmos Energy Corporation (NYSE:ATO)
Dividend Yield as of January 6: 2.52%
Atmos Energy Corporation (NYSE:ATO) is a Texas-based natural gas distribution company that focuses on providing safe and reliable natural gas services and invests heavily in infrastructure upgrades and safety programs. In fiscal 2024, the company celebrated its 13th consecutive year of successfully implementing its strategy centered on safe and reliable operations while upgrading its natural gas distribution, transmission, and storage infrastructure. This approach continues to deliver advantages for both customers and the wider community. The stock is up by over 15% in the past 12 months.
In the fourth quarter of 2024, Atmos Energy Corporation (NYSE:ATO) reported a net income of $134 million, up from $119 million in the same period last year. Its operating income came in at $185 million, growing from $154.1 million in the prior-year period. The company maintains a solid financial foundation, with 61% of its capital structure comprised of equity and access to $4.8 billion in available liquidity.
Atmos Energy Corporation (NYSE:ATO) currently offers a quarterly dividend of $0.87 per share, having raised it by 8.1% in November 2024. This marked the company’s 40th consecutive year of dividend growth, which makes it one of the best dividend stocks for an early retirement portfolio. As of January 6, the stock has a dividend yield of 2.52%.
At the end of Q3 2024, 20 hedge funds tracked by Insider Monkey reported having stakes in Atmos Energy Corporation (NYSE:ATO), up from 18 in the previous quarter. These stakes are collectively valued at more than $300 million. Among these hedge funds, Adage Capital Management was the company’s leading stakeholder in Q3.
9. Texas Instruments Incorporated (NASDAQ:TXN)
Dividend Yield as of January 6: 2.82%
Texas Instruments Incorporated (NASDAQ:TXN) is an American multinational semiconductor company that specializes in analog and embedded chips. The semiconductors serve as crucial components in electronic systems. With a portfolio exceeding 80,000 products, the company offers the most extensive range of general-purpose analog products, alongside a complete array of analog and embedded solutions, enabling customers to develop unique and innovative applications. In the past 12 months, the stock has surged by over 14%.
In the third quarter of 2024, Texas Instruments Incorporated (NASDAQ:TXN) reported revenue surpassing $4.1 billion, a decline from $4.5 billion in the same quarter of the previous year. The operating profit stood at over $1.55 billion, with a net income of $1.36 billion. Its financial stability was evident, with a trailing 12-month operating cash flow of $6.2 billion, highlighting the company’s robust business model, premium product range, and advantages from 300mm production. During this period, free cash flow reached $1.5 billion. Over the past year, Texas Instruments invested $3.7 billion in R&D and SG&A, allocated $4.8 billion to capital expenditures, and returned $5.2 billion to shareholders.
Texas Instruments Incorporated (NASDAQ:TXN) is one of the best dividend stocks for an early retirement portfolio as the company has been rewarding shareholders with growing dividends for the past 21 consecutive years. Currently, it pays a quarterly dividend of $1.36 per share and has a dividend yield of 2.82%, as of January 6.
The number of hedge funds tracked by Insider Monkey owning stakes in Texas Instruments Incorporated (NASDAQ:TXN) jumped to 57 in Q3 2024, from 50 in the preceding quarter. These stakes are collectively worth nearly $3 billion.
