In this article, we discuss the 10 safe dividend stocks to consider for retirement.
Astronomical valuations in the growth sector and the onset of the COVID-19 pandemic pushed dividend stocks to new lows last year. This sentiment has more or less remained constant even though inflation fears are dogging the marketplace and several experts have forecast that interest rates will rise soon, hurting growth rallies. However, there is more to dividend stocks than meets the eye. Data from the S&P Dow Jones Indices indicates that dividend income made up over 33% of the monthly total return of the S&P between 1996 and 2015.
In addition to steady monthly income, there are several other benefits to dividend stocks as well. For example, dividend stocks often experience less volatility than their growth counterparts, primarily because of the nature of their business. Over the long term, dividend stocks often outperform growth equities. According to research by Eugene Fama and Kenneth French, dividend payers have outperformed non-payers by close to 2 percentage points between 1927 and 2014 – dividend payers averaged 10.4% growth during the period against 8.5% for others.
Investors who want to shield their portfolios from some of the risks associated with growth stocks but also want capital gains in the process should check out some safe options in the dividend sector by following the smart money. Some of the top dividend stocks to buy according to hedge funds include Lowe’s Companies, Inc. (NYSE:LOW), Johnson & Johnson (NYSE:JNJ), The Procter & Gamble Company (NYSE:PG), The Coca-Cola Company (NYSE:KO), and Parker-Hannifin Corporation (NYSE:PH), among others discussed in detail below.
Our Methodology
With this context in mind, here is our list of the 10 safe dividend stocks to consider for retirement. The forward dividend yield and consecutive years of dividend growth for each stock are mentioned alongside other details for further clarity.
The list is compiled according to the number of hedge funds having stakes in each company. Data from the 873 funds tracked by Insider Monkey was used for this purpose.
Why pay attention to hedge fund holdings? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Retirement Stock Portfolio: Safe Dividend Stocks To Consider
10. Farmers & Merchants Bancorp, Inc. (NASDAQ:FMAO)
Number of Hedge Fund Holders: N/A
Consecutive Years of Dividend Growth: 56
Forward Dividend Yield: 2.99%
Farmers & Merchants Bancorp, Inc. is among a rare breed of stocks that perform consistently well but have valuations that test the patience of investors. The company recently declared a quarterly dividend of $0.18 per share, an increase of close to 6% from the previous dividend of $0.17 per share. The firm also beat market estimates on revenue in the second quarter by $3.3 million. The earnings per share over the period was $0.44.
Farmers & Merchants Bancorp, Inc. announced earlier this month that it had completed the acquisition of Perpetual Federal Savings Bank. The latter will fully transition into the new firm by October 18. With the purchase, the assets of the former are above $2.6 billion.
Farmers & Merchants Bancorp, Inc. has 31 offices across Ohio and Indiana. The firm has a market cap of $311 million and posted $69 million in revenue last year.
Just like Lowe’s Companies, Inc., Johnson & Johnson, The Procter & Gamble Company, The Coca-Cola Company, and Parker-Hannifin Corporation, Farmers & Merchants Bancorp, Inc. is one of the safe dividend stocks to consider for retirement.
9. American States Water Company (NYSE:AWR)
Number of Hedge Fund Holders: 14
Consecutive Years of Dividend Growth: 66
Forward Dividend Yield: 1.61%
American States Water Company (NYSE:AWR) is a water utility company with solid fundamentals. In the second quarter, it beat market estimates on earnings per share and revenue. In late July, the company declared a quarterly dividend of $0.365 per share, an increase of 9% from the previous dividend of $0.335 per share. In addition to water utility, the firm also has stakes in the electricity and industrial businesses.
Analysts are also bullish on the stock. In early August, Wells Fargo analyst Jonathan Reeder maintained an Overweight rating on American States Water Company stock and raised the price target to $98 from $87.
At the end of the second quarter of 2021, 14 hedge funds in the database of Insider Monkey held stakes worth $47 million in American States Water Company, the same as in the preceding quarter worth $38 million.
Out of the hedge funds being tracked by Insider Monkey, New York-based firm Millennium Management is a leading shareholder in Northwest Natural Holding Company (NYSE:NWN) with 207,634 shares worth more than $16 million.
In addition to Lowe’s Companies, Inc., Johnson & Johnson, The Procter & Gamble Company, The Coca-Cola Company, and Parker-Hannifin Corporation, American States Water Company is one of the safe dividend stocks to consider for retirement.
8. Commerce Bancshares, Inc. (NASDAQ:CBSH)
Number of Hedge Fund Holders: 16
Consecutive Years of Dividend Growth: 53
Forward Dividend Yield: 1.47%
There is positive hedge fund sentiment around Commerce Bancshares, Inc. (NASDAQ:CBSH). According to the latest filings, 16 hedge funds in the database of Insider Monkey have stakes worth $75 million in the company. This compares favorably to the filings at the end of March, when 13 funds held stake in the firm worth $73 million.
Connecticut-based firm AQR Capital Management is a leading shareholder in Northwest Natural Holding Company with 415,487 shares worth more than $30 million.
The earnings of the firm in the second quarter also make for good reading. Between March and June this year, Commerce Bancshares, Inc. earned a revenue of $347 million, up more than 8% year-on-year. The earnings per share over the period were $1.38, beating market predictions by $0.36.
Alongside Lowe’s Companies, Inc., Johnson & Johnson, The Procter & Gamble Company, The Coca-Cola Company, and Parker-Hannifin Corporation, Commerce Bancshares, Inc. is one of the safe dividend stocks to consider for retirement.
7. Lancaster Colony Corporation (NASDAQ:LANC)
Number of Hedge Fund Holders: 18
Consecutive Years of Dividend Growth: 59
Forward Dividend Yield: 1.74%
Lancaster Colony Corporation (NASDAQ:LANC) makes and sells packaged foods and meat products. Even though the firm is rated highly amongst hedge funds due to an impressive dividend history stretching back over five decades, it has had a mixed year so far. It narrowly missed market expectations on earnings per share in the fourth fiscal quarter but beat revenue estimates by $17 million.
However, dividend payouts have continued despite the minor setbacks. In August, Lancaster Colony Corporation declared a quarterly dividend of $0.75 per share, in line with previous.
At the end of the second quarter of 2021, 18 hedge funds in the database of Insider Monkey held stakes worth $294 million in Lancaster Colony Corporation, down from 22 the preceding quarter worth $246 million.
Out of the hedge funds being tracked by Insider Monkey, New York-based firm Renaissance Technologies is a leading shareholder in Northwest Natural Holding Company with 394,963 shares worth more than $76 million.
Lowe’s Companies, Inc., Johnson & Johnson, The Procter & Gamble Company, The Coca-Cola Company, and Parker-Hannifin Corporation are some of the safe dividend stocks to consider for retirement, just like Lancaster Colony Corporation.
6. Northwest Natural Holding Company (NYSE:NWN)
Number of Hedge Fund Holders: 11
Consecutive Years of Dividend Growth: 65
Forward Dividend Yield: 4.05%
Northwest Natural Holding Company is another hedge fund favorite in the dividend domain with strong fundamentals. The company beat market estimates on earnings per share and revenue in the second quarter, reaffirming guidance numbers. The company primarily operates as a gas utility firm. Last week, it declared a quarterly dividend of $0.4825 per share, an increase from the previous dividend of $0.4800 per share.
Wells Fargo analyst Sarah Akers gave Northwest Natural Holding Company stock an Equal Weight rating with a price target of $58 in May, up from $49 earlier. Akers cited higher peer group multiples as one of the reasons behind the upgrade.
Out of the hedge funds being tracked by Insider Monkey, Chicago-based firm Citadel Investment Group is a leading shareholder in Northwest Natural Holding Company with 102,471 shares worth more than $5.3 million.
At the end of the second quarter of 2021, 11 hedge funds in the database of Insider Monkey held stakes worth $14 million in American States Water Company, up from 10 in the preceding quarter worth $28 million.
5. Cincinnati Financial Corporation (NASDAQ:CINF)
Number of Hedge Fund Holders: 22
Consecutive Years of Dividend Growth: 61
Forward Dividend Yield: 2.13%
Cincinnati Financial Corporation (NASDAQ:CINF) provides property casualty insurance products across the United States. The firm recently declared a quarterly dividend of $0.63 per share, in line with previous. In the second quarter earnings, it beat market estimates on earnings per share by $0.84. The revenue over the period was $1.5 billion, up more than 7% year-on-year.
Analysts have also taken note of the solid fundamentals of Cincinnati Financial Corporation. Wolfe Research analyst Michael Zaremski recently initiated the stock with an Outperform rating and a price target of $148.
Out of the hedge funds being tracked by Insider Monkey, New York-based firm Select Equity Group is a leading shareholder in Cincinnati Financial Corporation with 5.7 million shares worth more than $672 million.
4. ABM Industries Incorporated (NYSE:ABM)
Number of Hedge Fund Holders: 23
Consecutive Years of Dividend Growth: 54
Forward Dividend Yield: 1.68%
ABM Industries Incorporated (NYSE:ABM) markets integrated facility solutions. These include engineering, parking, landscaping, and electrical services, among others. It is one of the oldest such companies in the country. It was founded in 1909. The company recently declared a quarterly dividend of $0.19 per share, in line with previous. It also beat market expectations on earnings per share and revenue in the second quarter.
In late August, ABM Industries Incorporated had announced that it would be acquiring facilities services company Able Services in a deal worth $830 million. The company expects to achieve up to $40 million cost synergies as a result of the purchase.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Millennium Management is a leading shareholder in ABM Industries Incorporated with 610,082 shares worth more than $27 million.
3. Nordson Corporation (NASDAQ:NDSN)
Number of Hedge Fund Holders: 34
Consecutive Years of Dividend Growth: 58
Forward Dividend Yield: 0.83%
Investment advisors like Wells Fargo and DA Davidson have recently raised the price targets on Nordson Corporation (NASDAQ:NDSN) stock, evidence of the rapidly improving economic environment for industrial companies. Baird has termed valuations in the sector “attractive” in both absolute and relative terms. Baird noted that 2022 would prove to be a healthy growth-driven year for industrial firms.
Nordson Corporation beat market expectations on earnings per share and revenue in the third fiscal quarter. The operating profit over the period was $188 million, up 57% year-on-year.
Out of the hedge funds being tracked by Insider Monkey, Chicago-based firm Citadel Investment Group is a leading shareholder in Nordson Corporation with 331,534 shares worth more than $72 million.
2. Parker-Hannifin Corporation (NYSE:PH)
Number of Hedge Fund Holders: 42
Consecutive Years of Dividend Growth: 65
Forward Dividend Yield: 1.38%
On August 12, Parker-Hannifin Corporation declared a quarterly dividend of $1.03 per share, in line with previous. In the fourth fiscal quarter earnings, posted on August 5, the company reported earnings per share of $4.38, beating estimates by $0.64. The revenue over the period was $3.9 billion, up 25% compared to the revenue over the same period last year and beating predictions by $30 million.
On October 12, investment advisory Melius Research upgraded Parker-Hannifin Corporation stock to Buy from Hold with a two-year price target of $458. The target reflects an upside potential of over 50% from the present share price.
Out of the hedge funds being tracked by Insider Monkey, Ohio-based investment firm Diamond Hill Capital is a leading shareholder in Parker-Hannifin Corporation with 1.5 million shares worth more than $463 million.
In its Q1 2021 investor letter, Oakmark Funds, an asset management firm, highlighted a few stocks and Parker-Hannifin Corporation (NYSE:PH) was one of them. Here is what the fund said:
“Parker Hannifin approached our estimates of intrinsic value and were, therefore, eliminated during the period. The company was a longstanding investment of the Fund and produced successful outcomes. We believe Parker Hannifin, one of our longest tenured positions, is a high-quality, well-managed industrial with strong competitive positions in good end markets. However, after the market price reflected these positives, we elected to sell to pursue more attractive alternatives that were priced at steeper discounts to our estimates of intrinsic value.”
1. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Holders: 63
Consecutive Years of Dividend Growth: 59
Forward Dividend Yield: 1.46%
Lowe’s Companies, Inc. is one of the most recognizable brand names in the United States. The company has matched that brand quality with a stellar dividend history going back almost six decades. Investment bank Morgan Stanley recently termed the stock as a top pick in the Overweight ratings section. It gave the stock a price target of $240. Analyst Simeon Gutman is covering the stock.
Lowe’s Companies, Inc. declared a quarterly dividend of $0.80 per share in late August, in line with previous. The company has recently assured shareholders that supply chain issues are getting better and that the firm is in a much better spot than earlier this year.
At the end of the second quarter of 2021, 63 hedge funds in the database of Insider Monkey held stakes worth $4.9 billion in Lowe’s Companies, Inc., up from 61 the preceding quarter worth $5.1 billion.
In its Q2 2021 investor letter, Pershing Square Holdings, Ltd., an asset management firm, highlighted a few stocks and Lowe’s Companies, Inc. (NYSE:LOW) was one of them. Here is what the fund said:
“Since the onset of the COVID-19 pandemic, Lowe’s has experienced a signifi cant acceleration in demand driven by consumers nesting at home, higher home asset utilization and the reallocation of discretionary spend. In the three years since Marvin Ellison became CEO, the company has executed a multi-year transformation plan to bolster Lowe’s retail fundamentals, reduce structural costs, expand distribution capabilities, and modernize systems and the company’s online capabilities. This transformation has allowed Lowe’s to meet consumers’ needs during this highly elevated period of demand, and positioned the company for continued success and accelerated earnings growth.
In the second quarter, Lowe’s reported U.S. same-store-sales growth of 2.2%. Growth was bolstered by strength from the critical Pro consumer, where Lowe’s reported growth of 21%, off setting moderating do-it-yourself (“DIY”) demand. While DIY demand has receded from peak-COVID-19 periods, Pro customer demand has accelerated as consumers engage Pro’s for larger renovation projects.
Notwithstanding the headline growth fi gure, which is impacted by comparisons to COVID-19-aff ected months from spring of 2020, demand remains extremely elevated relative to baseline 2019 levels. July same-store-sales, the most recent full month for which the company has provided disclosure, were up 31.5% on a two-year basis and management indicated August month-to-date results are substantially similar. More signifi cantly, Lowe’s reported Pro growth of +49% on a two-year basis in Q2, evidence that Lowe’s focus on the Pro is bearing fruit. Share gains with the critical Pro customer will provide a tailwind to growth that should allow Lowe’s to outperform market-level growth going forward.
Even as the robust demand experienced during the height of COVID-19 stabilizes at a new base, the medium and longer-term macro environment remain very attractive for the home improvement sector and Lowe’s in particular. This favorable context for the sector is evidenced by consumers’ enhanced focus and appreciation of the importance of the home, higher home asset utilization, rising home prices, historically low mortgage rates, an aging housing stock, strong consumer balance sheets, and the general lack of new housing inventory.
Against this backdrop, Lowe’s is focused on taking market share and expanding margins. Pro penetration today is still only 25% of revenue as compared to Lowe’s medium-term target of 30% to 35%, providing a runway for continued abovemarket growth. Management continues to execute against various operational initiatives (Lowe’s “Perpetual Productivity Improvement” program) designed to improve the customer experience while enhancing the company’s margins and longterm earnings power. The company’s long-term outlook implies signifi cant opportunity for continued margin expansion and earnings appreciation as it executes its business transformation.
Lowe’s currently trades at approximately 17 times forward earnings. Home Depot, its closest competitor, trades at approximately 22 times forward earnings despite Lowe’s superior prospective earnings growth. We find this valuation disparity to be anomalous in light of Lowe’s strong execution and potential for further operational optimization.”
You can also take a peek at 10 Stocks that Helped Warren Buffett Make $4.6 Billion in Dividends and 10 Best Dividend Stocks with Over 5% Yield According to Hedge Funds.
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This article is originally published at Insider Monkey.
