2 Dividend Stocks That Are Great for Retirees

If you're looking for great dividend stocks for retirement, then you could do a lot worse than McDonald's and ExxonMobil.

May 31, 2014 at 3:00PM

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Stocks that are great for retirement aren't necessarily good for someone who's trying to build wealth. Lest there be any doubt about this, McDonald's (NYSE:MCD) and ExxonMobil (NYSE:XOM) serve as textbook examples of the point.

In many respects, retirement serves as a clear inflection point in one's investment objectives.

Prior to retirement, the goal is to build and accumulate wealth. This is often done by favoring growth stocks. Some great examples of these are Tesla Motors, 3D Systems, and LinkedIn.

All three of these companies are still early in their corporate lives. If they're technologies and services continue to take hold, they could end up being significantly larger than they are today. By contrast, if they don't, then they could easily go out of business.

The net result is that all of their stocks are highly volatile, as investors are quick to the trigger when it comes to news that could either deflate or further inflate future expectations. And while this risk is fine for people with decades to go before retirement, the thought of losing principal is simply not something most retirees are interested in.

In addition, after retirement, the purpose shifts to replacing lost income. This results in a strategy of investing in dividend stocks, bonds, and other income-generating alternatives.

This is the reason, in turn, that stocks like McDonald's and ExxonMobil are generally considered to be good retirement stocks.

Beyond being two of the higher yielding blue-chip stocks on the market today, they also sport low betas, meaning they're much less volatile than the broader market. In McDonald's case, it yields 3.2% and has a beta of .34. In other words, it pays a higher dividend than the general market while being 66% less volatile -- for context, the S&P 500 (SNPINDEX:^GSPC) yields 1.95%. And in Exxon's case, it yields 2.7% and has a beta of .92.

These are the exact qualities that most retirees want in stocks for their portfolio. With this in mind, if you're in or on the cusp of retirement, then you could do a lot worse than McDonald's and/or ExxonMobil.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

John Maxfield has no position in any stocks mentioned. The Motley Fool recommends McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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