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.
Photo by Diana Parkhouse on Unsplash
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.
5. Old Republic International Corporation (NYSE:ORI)
Number of Hedge Fund Holders: 31
Old Republic International Corporation (NYSE:ORI) ranks fifth on our list of the best dividend stocks for a retirement stock portfolio. The company specializes in underwriting insurance policies tailored for businesses, governments, and various institutions. It generates most of its revenue from these policies, which are primarily issued in the US and provide liability coverage for sectors such as trucking, aviation, construction, healthcare, energy, and more. Another significant aspect of its operations is title insurance, which safeguards lenders or buyers in property transactions against claims like unpaid tax liens or other encumbrances on the property. The stock has surged by nearly 24% so far in 2024.
In the third quarter of 2024, Old Republic International Corporation (NYSE:ORI) posted total operating revenue of $2.1 billion, up 10% from the same period last year. Consolidated net premiums and fees earned grew by 9.6%, supported by robust growth in General Insurance and steady gains in Title Insurance. In addition, net investment income rose by 17.3%, fueled by higher investment yields.
Old Republic International Corporation (NYSE:ORI) remained committed to its shareholder obligation, returning $232 million to shareholders through dividends and share repurchases. Its solid cash position has enabled it to issue special dividends on multiple occasions. Most recently, on December 13, it declared another special dividend of $2.00 per share. It pays a quarterly dividend of $0.265 per share and has a dividend yield of 2.91%, as of December 17. The stock is a good option for retirees because the company holds a 44-year streak of consistent dividend growth.
Old Republic International Corporation (NYSE:ORI) was a popular stock among elite funds at the end of Q3 2024, with hedge fund positions growing to 31, from 25 in the previous quarter, according to Insider Monkey’s database. The stakes owned by these funds have a consolidated value of over $362.2 million.
4. Kimberly-Clark Corporation (NYSE:KMB)
Number of Hedge Fund Holders: 45
Kimberly-Clark Corporation (NYSE:KMB) is an American multinational consumer goods and personal company. In Q3 2024, the company reported revenue of $4.95 billion, a 4% decline compared to the same period last year. Through its Powering Care strategy, the company is accelerating its innovation efforts and reducing costs to deliver better consumer solutions across all price points. It is also simplifying its operations to enhance agility and market responsiveness. Kimberly-Clark remains on course to achieve solid growth in operating profit, margins, and EPS for 2024 while continuing to invest in maintaining business momentum into 2025.
Kimberly-Clark Corporation (NYSE:KMB) maintained strong cash generation this year. For the first nine months of 2024, the company reported operating cash flow of $2.4 billion, an increase from $2.3 billion in the same period last year. During this time, it returned $2 billion to shareholders through dividends and share buybacks.
On November 13, Kimberly-Clark Corporation (NYSE:KMB) declared a quarterly dividend of $1.22 per share, which fell in line with its previous dividend. The company is a Dividend King, with 52 consecutive years of dividend growth under its belt. As of December 17, the stock offers a dividend yield of 3.72%.
Of the 900 hedge funds tracked by Insider Monkey at the end of Q3 2024, 45 hedge funds held stakes in Kimberly-Clark Corporation (NYSE:KMB), up from 43 in the previous quarter. These stakes are collectively valued at over $1 billion.
3. Texas Instruments Incorporated (NASDAQ:TXN)
Number of Hedge Fund Holders: 57
Texas Instruments Incorporated (NASDAQ:TXN) is a Texas-based multinational semiconductor company that produces analog and embedded chips. The company concentrates on analog processing and embedded processing segments, both of which are vital. Analog technology handles real-world signals, while embedded technology enables various automated functions in electronics. Recently, the company has been focusing on enhancing its manufacturing capabilities, especially in 300mm wafer production, with the goal of achieving cost efficiencies. The stock has surged by over 11% since the start of 2024.
In the third quarter of 2024, Texas Instruments Incorporated (NASDAQ:TXN) reported revenue of over $4.1 billion, compared with $4.5 billion in the same period last year. The company’s operating profit and net income came in at over $1.55 billion and $1.36 billion, respectively. Its cash position remained strong. The company reported an operating cash flow of $6.2 billion for the trailing 12 months, highlighting the strength of its business model, the quality of its product portfolio, and the advantages of 300mm production. Free cash flow for the same period was $1.5 billion. Over the past year, the company invested $3.7 billion in R&D and SG&A, $4.8 billion in capital expenditures, and returned $5.2 billion to its shareholders.
The London Company mentioned TXN in its Q2 2024 investor letter. Here is what the firm has to say:
“Texas Instruments Incorporated (NASDAQ:TXN) – TXN rallied in 2Q despite declining revenue in its latest update. TXN is beginning to see some encouraging signs of destocking nearing an end and some sub segments of the market are experiencing improving demand. TXN continued to spend on capex and should begin to see positive benefits to cash flow next year from the CHIPS Act.”
Texas Instruments Incorporated (NASDAQ:TXN) has a strong dividend history, having raised its payouts for 21 consecutive years. During this period, the company has raised its payouts at a CAGR of 24%. Currently, it pays a quarterly dividend of $1.36 per share and has a dividend yield of 2.89%, as recorded on December 17.
The number of hedge funds tracked by Insider Monkey owning stakes in Texas Instruments Incorporated (NASDAQ:TXN) grew to 57 in Q3 2024, from 50 in the previous quarter. The total value of these stakes is nearly $3 billion. With over 4.2 million shares, First Eagle Investment Management was the company’s leading stakeholder in Q3.
2. Lockheed Martin Corporation (NYSE:LMT)
Number of Hedge Fund Holders: 58
Lockheed Martin Corporation (NYSE:LMT) is a Maryland-based aerospace and defense company that specializes in advanced technology systems, services, and products. The company has garnered interest from investors, as defense contractors are often viewed as stable investment options. This stability is largely attributed to the US government, a dependable client, and the steady nature of defense budgets, which typically remain consistent even in economic downturns. In addition, increasing global geopolitical tensions are driving higher defense spending, with funds directed toward replenishing equipment used in conflicts and addressing growing security concerns. Of particular note is Lockheed Martin’s missiles and fire control division, which is projected to be the fastest-growing segment in the years ahead and also delivers the highest profit margins. Since the start of 2024, the stock has surged by over 7.5%.
Lockheed Martin Corporation (NYSE:LMT) is one of the best dividend stocks for a retirement stock portfolio as it is expected to maintain its dividend in the coming years, supported by robust cash flow generation. In the most recent quarter, the company reported $2.4 billion in operating cash flow and $2.1 billion in free cash flow. During this period, it returned $1.6 billion to shareholders through dividends and share repurchases. It pays a quarterly dividend of $3.30 per share and has a dividend yield of 2.7%, as of December 17. The company maintains a 22-year track record of consistent dividend growth.
Ariel Investments made the following comment about Lockheed Martin Corporation (NYSE:LMT) in its Q3 2024 investor letter:
“Additionally, leading global defense contractor Lockheed Martin Corporation (NYSE:LMT) increased following a top- and bottom-line earnings beat and subsequent raise in full year guidance. The company also announced three significant F-35 contracts underscoring the growing tailwinds for sustainment efforts and continued engineering advancements as the fleet continues to expand. LMT continues to be well positioned in the defense sector.”
According to Insider Monkey’s Q3 2024 data, 58 hedge funds held positions in Lockheed Martin Corporation (NYSE:LMT), an increase from 56 in the prior quarter. The total value of these holdings amounted to approximately $2.4 billion. Among these hedge funds, Two Sigma Advisors was the company’s leading stakeholder in Q3.
1. AbbVie Inc. (NYSE:ABBV)
Number of Hedge Fund Holders: 68
AbbVie Inc. (NYSE:ABBV) is an Illinois-based pharmaceutical and biotech company, offering related products and services to its shareholders. In the past 12 months, the stock has delivered an over 14.3% return to shareholders, reflecting investor confidence in its ability to navigate Humira’s patent expiration. Humira, which was a top-selling drug with peak sales of $21 billion in 2022, experienced a sharp revenue drop after losing patent protection last year. However, AbbVie’s management successfully addressed the impact, offsetting the decline in Humira’s sales, which had previously contributed to about a third of the company’s total revenue.
In the third quarter of 2024, AbbVie Inc. (NYSE:ABBV) reported revenue of $14.46 billion, a 4% increase from the same quarter last year. Its Immunology Portfolio generated over $7 billion in revenue, also showing a 4% year-over-year growth. In August, the company acquired Cerevel Therapeutics, a pharmaceutical firm specializing in neuroscience, for $8.7 billion in cash. This acquisition brought a promising pipeline of drug candidates, including emraclidine, a potential treatment for schizophrenia.
AbbVie Inc. (NYSE:ABBV), one of the best stocks for a retirement stock portfolio, has increased its payouts for 52 years. The company currently pays a quarterly dividend of $1.64 per share and has a dividend yield of 3.74%, as of December 17.
As of the end of Q3 2024, 68 of the 900 hedge funds tracked by Insider Monkey had invested in AbbVie Inc. (NYSE:ABBV), up from 67 in the prior quarter. The total value of these holdings exceeded $2.5 billion.
Overall, AbbVie Inc. (NYSE:ABBV) ranks first on our list of the best stocks for a retirement stock portfolio. While we acknowledge the potential for ABBV to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ABBV but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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