In this article, we will discuss some of the best dividend stocks for a retirement stock portfolio.

As investors near retirement, achieving financial stability becomes a top priority. Among the various investment choices, steady dividend payments hold particular appeal for their reliability and security. Dividends, which are a share of a company’s profits distributed to shareholders, offer a dependable source of income.

Research shows a growing trend of Americans retiring earlier than expected, often due to circumstances beyond their control. According to a study by the Transamerica Center for Retirement Studies and the Transamerica Institute, 58% of workers retire earlier than planned. The most frequently cited reasons for early retirement include health-related issues, which account for 46%, followed by employment challenges at 43%, and family obligations at 20%. Interestingly, only 21% cited financial stability as the reason for early retirement. The median retirement age is now 62, falling three years short of the traditional retirement age of 65.

Also read: Retirement Stock Portfolio: 10 Consumer Stocks To Buy

Dividend stocks are becoming an increasingly important component of a well-diversified retirement portfolio for many investors. Carefully selected dividend-paying stocks can provide stability during market downturns and enhance returns during rallies by generating quarterly income that offsets losses and boosts gains. In addition, they can serve as a safeguard against inflation, which has become a growing concern due to rising food and energy costs. Some top-performing companies have consistently increased their dividend payouts year after year for decades. David Giroux, a portfolio manager at T. Rowe Price who manages the firm’s capital-appreciation strategy, spoke about dividend stocks in one of his interviews with Barron’s. Here are some comments from the analyst:

“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 emphasize that while income and growth are essential for savers to sustain a potentially lengthy retirement, this strategy has its limitations and may not suit everyone. They recommend a portfolio diversified across various sectors and companies with substantial cash reserves to support stock buybacks. Dave King, a senior portfolio manager at Columbia Threadneedle Investments, highlighted in an interview with Barron’s the importance of simple diversification. He suggested holding at least eight stocks from different sectors, noting that diversification doesn’t need to be excessive but should include more than a few stocks—ideally more than five, with one representing each broad sector. According to King, when selecting stocks for such a portfolio, it’s important to avoid placing too much weight on Wall Street research. Instead, the focus should be on fundamental, historically proven factors like a company’s credit rating or the reputation of its management, which can provide valuable insight into the reliability of its dividend payments.

Dividend growth stocks are highly sought after for a retirement stock portfolio. Data from S&P Dow Jones Indices highlighted their appeal, showing that the Dividend Aristocrats Index delivered a total return of 12.08% from 1990 to 2019. This outpaced the broader market, which had a return of 9.95% over the same period, making these stocks attractive not only to retirees but to investors of all ages. In this article, we will take a look at some of the best dividend stocks for a retirement stock portfolio.

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 seven stocks, each from a different industry, all with yields of at least 2%. Next, we arranged them in ascending order of the number of hedge funds having stakes in them, according to Insider Monkey’s database of 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)

7. Realty Income Corporation (NYSE:O)

Number of Hedge Fund Holders: 23

Realty Income Corporation (NYSE:O) is an American real estate investment trust company that invests in single-tenant commercial properties in the country. The company’s portfolio is well-diversified, which helps mitigate risk. Although roughly 73% of rental income comes from retail properties, these assets are small and easily transferable.  The remaining portion of the portfolio includes industrial properties and larger, distinctive investments such as vineyards and casinos. The company’s holdings are mainly in North America, though it is expanding in Europe. With an investment-grade balance sheet, this REIT is built on a strong foundation.

Realty Income Corporation (NYSE:O) could be a great option for retirees as it provides monthly payouts. On December 10, the company hiked its monthly payout to 0.2% to $0.264 per share. This was the company’s fifth dividend increase this year. Overall, it has raised its payouts multiple times since its IPO in 1994. With an attractive dividend yield of 5.81%, as of December 17, O is one of the best stocks for a retirement portfolio.

In the third quarter of 2024, Realty Income Corporation (NYSE:O) reported revenue of $1.27 billion, a 27% increase from the same period last year. The revenue exceeded analysts’ expectations by over $10 million. The company has revised its 2024 investment volume forecast to around $3.5 billion and raised the lower end of its AFFO per share guidance to a range of $4.17 to $4.21, indicating a 4.8% growth at the midpoint. Looking forward, the company is pursuing various growth opportunities, including capital diversification, to further expand its platform’s reach and scale.

Parnassus Investments highlighted Realty Income Corporation (NYSE:O) in its Q3 2024 investor letter. Here is what the firm has to say:

“Realty Income Corporation (NYSE:O) is poised to benefit from lower interest rates. Because its commercial tenants are mostly on 10-year leases, the stock’s steady dividend stream is attractive in the current environment of slow deceleration in the economy with rates coming down. In this favorable backdrop, the company also continues to execute well.”

At the end of Q3 2024, 23 hedge funds tracked by Insider Monkey held stakes in Realty Income Corporation (NYSE:O), up from 19 in the previous quarter. The consolidated value of these stakes is over $163.5 million.

6. Edison International (NYSE:EIX)

Number of Hedge Fund Holders: 29

Edison International (NYSE:EIX) is a public utility company, headquartered in California. The company is involved in the generation of electricity through various sources, including natural gas, nuclear, and renewable energy. It also provides consulting services to institutions aiming to reduce their energy costs by enhancing the efficiency of their power usage. The stock has surged by over 11% since the start of 2024.

Edison International (NYSE:EIX) reported revenue of $5.2 billion in the third quarter of 2024, a 10.6% increase compared to the same period last year. The revenue exceeded analysts’ expectations by $192.4 million. The company is optimistic about narrowing its 2024 core EPS guidance, thanks to strong year-to-date results. Over the past few years, Edison has effectively managed major climate challenges, enhanced its operational resilience, and positioned itself for future growth.

ClearBridge Investments also highlighted the company’s strong business in its Q3 2024 investor letter. Here is what the firm has to say:

“From a sector perspective, meanwhile, our utilities overweight was positive, with Edison International (NYSE:EIX) our top individual contributor. The company reached a tentative deal to recoup $1.7 billion of wildfire and mudslide expenses in California, bolstering its balance sheet, increasing earnings and demonstrating the favorable regulatory environment in California, benefiting both Edison as well as Sempra, our largest utility holding. Another rate-sensitive area — real estate — was the second-best sector performer as rate cuts boosted valuations in this area. Our REITs underweight, however, was a headwind during the period.”

Edison International’s (NYSE:EIX) cash position also came in strong during the most recent quarter. The company had approximately $200 million available in cash and cash equivalents. In the first nine months of the year, its operating cash flow grew to $3.8 billion, from $2.5 billion in the same period last year.

On December 12, Edison International (NYSE:EIX) announced a 6.1% hike in its quarterly dividend to $0.8275 per share. This marked the company’s 21st consecutive year of dividend growth, which makes EIX one of the best stocks for a retirement stock portfolio. As of December 17, the stock has a dividend yield of 4.11%.

Edison International (NYSE:EIX) was a part of 29 hedge fund portfolios at the end of Q3 2024, as per Insider Monkey’s database. The stakes held by these funds have a collective value of $1.4 billion. Among these hedge funds, Pzena Investment Management was the company’s leading stakeholder in Q3.