Revealing 3 Perfect Dividend Stocks for a 2020 Retirement 

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Want to retire in the next decade? Excellent! Today, I'm revealing three dividend payers that will get you there safely and provide an ever-growing source of income after retirement. It's time your money started working for you, and I'm confident these picks will do just that.

Carefully seeking perfection
There are roughly 5,400 companies trading on major U.S. exchanges, 2,300 of which pay dividends. To find the best dividend stocks for retirees, I spread my research across several days (and sleepless nights), throwing out companies if I had concerns about the underlying business, the industry, or the sustainability of the dividend. That hard work ultimately boiled down to the three companies below.

Before we go directly to the picks, let's take one minute to highlight some of the stocks I threw out, and why.

First, I excluded all real estate investment trusts (REITs), currently among the highest yielders in the market. Two of the most popular on are Annaly Capital (NYSE: NLY  ) and its spinoff Chimera Investment (NYSE: CIM  ) , which yield 14.2% and 17.1%, respectively. Even though highly respected Fool analyst Ilan Moscovitz recommended Annaly to readers, I don't believe it or Chimera are suitable for those looking to retire in the next decade. They make their money on the spread between short- and long-term rates and are required to pay 90% of their taxable income to shareholders -– hence the massive dividends. When (not if) the Fed begins bumping up the short-term rates, that spread will decrease, and the dividend yield likely will follow. That sort of uncertainty works for investors with longer time frames, but those of us looking to retire in 2020 must demand greater assurance.

Next, I threw out companies that pay out more in dividends than their net income -- in other words, which have a payout ratio of more than 100%. Imagine paying your children more in allowance than you earn in each of the next 10 years. That sounds like a bad practice to me, and I don't want my hard-earned retirement dollars in companies doing the equivalent of that -- and I'd give you the same advice.

Two companies I excluded because of this were shipper Nordic American Tanker (NYSE: NAT  ) , which funds its dividends by consistently issuing more shares, and rural telecom Windstream (Nasdaq: WIN  ) . In addition, I don't like the prospects for the long-term (10-plus years) sustainability of the rural telecom industry. Even though a company throws off a lot of cash now, I'm more concerned about your 2020 retirement, not 2011 dividend payouts.

Stock picks for a 2020 retirement
Now, let's jump right to the companies you're here for today. You'll notice some similar traits:

  • You've heard of them all, and they may seem boring and stodgy. That's a good thing.
  • There is a 100% chance the industry will be around in 2020.
  • They're market leaders and the underlying business has a growth story.
  • Their dividends are low right now, but they're sustainable, and growing fast!

First up, Yum! Brands (NYSE: YUM  ) , the company behind Kentucky Fried Chicken and Pizza Hut. I've already named it one of my favorite American stocks, and today I'm backing that up for 2020 retirees. Here are the vitals:


Capital IQ, a division of Standard and Poor's. CAGR = compound annual growth rate.

I believe Yum will continue to spread its KFC deliciousness throughout China and into emerging markets. This will throw off plenty of cash and keep that dividend growing year after year. By getting in now, your 2020 yield on today's investment should be quite substantial -- not to mention the great chance for stock price appreciation.

My second dividend payer for 2020 retirees is Hasbro (Nasdaq: HAS  ) , the company behind Transformers, G.I. Joe, Nerf, Milton Bradley, and a host of other well-known toys:       

Capital IQ, a division of Standard and Poor's. CAGR = compound annual growth rate.

David Gardner most recently highlighted Hasbro for Motley Fool Stock Advisor members because of its similarities to Marvel. With decades of intellectual property, and stockpiles of mindshare among yesterday's children (who happen to be today's consumers), Hasbro should be able to utilize its massive library in new and exciting ways over the next decade.

Lastly, I'm recommending Wal-Mart (NYSE: WMT  ) :

Capital IQ, a division of Standard and Poor's. CAGR = compound annual growth rate.

Among the three, I'm least excited about Wal-Mart's growth prospects, but I'm most excited about the safety it adds to the portfolio. As one of the largest employers in the United States, Canada, and Mexico, Wal-Mart isn't going away for a very long time. Combine that fact with the extremely healthy payout ratio and you get a very solid cornerstone for your dividend portfolio.

While I'm confident in these picks for 2020 retirees, you may choose to go with higher yielders or more obscure stocks for your portfolio. I definitely recommend doing further research and ultimately reaching your own conclusions, and I'm happy to point you in the right direction. Get in the fast lane on your dividend stock research by downloading a new free report called 13 High-Yielding Stocks to Buy Today, which highlights several more dividend payers, including one Fool analyst Jim Royal calls the dividend play of a lifetime. I invite you to get instant access to this report by clicking here now -- it's free.

Jeremy Phillips doesn't own shares of the companies mentioned in this article. Wal-Mart is a Motley Fool Inside Value pick and a Motley Fool Global Gains pick. Hasbro is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Annaly Capital, Wal-Mart, and Yum! Brands. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is investors writing for investors.

Read/Post Comments (37) | Recommend This Article (84)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 22, 2010, at 2:44 PM, marklenert wrote:

    I find it very disturbing that your dividend recommendations are all paying dividends of about 2%. Are you investing in these companies for growth or are you investing for dividend income. If investing for dividend income or interest income there are numerous better choices out there.....if you are investing for growth and appreciation of stock value at lease be up front about what you are doing with the investors money. I find a 2% payout on my investment unbelievably low compared to many other choices. I am not recommending any of these choices but all of the following still pay out more than 2%: 10 yr treasuries, 5 yr cds, muni bonds, corporate bonds, floating rate bonds, almost all reits, many oil,telecom, and px stocks.

    Might want to rethink or restate the premise....are you investing for retirement income or growth for retirement?

  • Report this Comment On December 22, 2010, at 3:13 PM, svellyn wrote:

    WHAT HAPPENED - I SEE 1 MILION CALL OPTIONS FOR NLY 17.5 CALL, is this a glich or my pc is not working...or someone just desided to get rich???Anybody?I am asking this 'cause i just bought Put for NLY...silly me?

  • Report this Comment On December 22, 2010, at 4:02 PM, TMFMoby wrote:

    marklenert - Thank you for the comment.

    Each of these company's yields are greater than the S&P 500's yield by over 10%. They are also growing their dividends pretty rapidly (see the charts), which will give you a higher and higher yield on your original investment each year.

    In Yum's case, the dividend payout has increased 33% per year over the last five years. If that rate continues, a investment now would have double the payout in 3 years. The other asset classes you mention may have a higher payout now, but none will consistently grow like Yum's.

    All the while there's a strong chance for your original investment to grow while being releatively safe when compared to other, higher yielding equities.

    My intent of this article was to help investors set themselves up for safe retirement income 10 years from now, while still having a strong chance for growth. In order to have high yielding, releatively safe stocks 10 years from now, I believe investors should look for great companies that are growing their dividends in a sustainable manner.

    I'd love to continue the conversation.

    Fool on,


  • Report this Comment On December 22, 2010, at 4:54 PM, BioBat wrote:


    Your article seemed pretty upfront to me. I found it particularly difficult to miss these three bullet points:

    1. There is a 100% chance the industry will be around in 2020.

    2. They're market leaders and the underlying business has a growth story.

    3. Their dividends are low right now, but they're sustainable, and growing fast!

    I got into YUM and Hasbro quite a while back for the reasons you highlighted and both have treated me very well. Both have outpacing the overall market by a wide, wide margin, while paying a substantial and stable dividend.

  • Report this Comment On December 22, 2010, at 5:57 PM, bretcomar wrote:

    Why no utilities?

  • Report this Comment On December 22, 2010, at 6:26 PM, TMFMoby wrote:

    Hi bretcomar - I threw out utilities because I wanted more dividend growth for future high yields. Here are the 5 largest utilities by market cap.

    Southern Company (NYSE:SO)

    Yield: 4.8%

    Div per Share CAGR: 4.1%

    Exelon Corp. (NYSE:EXC)

    Yield: 5.1%

    Div per Share CAGR: 5.6%

    Dominion Resources, Inc. (NYSE:D)

    Yield: 4.6%

    Div per Share CAGR: 6.2%

    Dominion Resources, Inc. (NYSE:D)

    Yield: 5.5%

    Div per Share CAGR: -3.2%

    NextEra Energy, Inc. (NYSE:NEE)

    Yield: 3.9%

    Div per Share CAGR: 7.0%

    They all have greater dividend yields than the three companies I mention above, but in 5-10 years, that will not be the case. Compare the dividend growth rates (CAGR) to those of the YUM, WMT, and HAS.


  • Report this Comment On December 22, 2010, at 6:39 PM, xetn wrote:

    I believe the calls of NLY are due to the number of NLY directors and officers making purchases. An example:

  • Report this Comment On December 22, 2010, at 6:58 PM, Emperor2 wrote:

    By throwing out high yielding stocks like NLY or CIM, you are assuming your readers are too stupid to sell them if business model changes. One quarter of an NLY dividend will be equal to about 7 quarters of YUM, HAS or WNT. Plus, if you re-invest the dividends, it might equal 10 quarters or more. This article is written for people without any intelligence. If someone has any intelligence, they will see how illogical it is. Personally, I'll take the money and run.

  • Report this Comment On December 22, 2010, at 7:02 PM, wsplitts2 wrote:

    Give me NLY and CIM anytime. I'll take their returns and move on when the circumstances change. I would never commit to owning a stock for 10 years as your article seems to assume.

  • Report this Comment On December 22, 2010, at 7:26 PM, TMFMoby wrote:

    Emperor2 & wsplitts2 - Thanks for your perspective.

    The difference between your viewpoints and mine is that I am looking for dividend stocks that I and similarly-minded investors can buy and potentially hold for the next 10-20 years, while you both prefer a more active approach.

    There's nothing wrong with that, but the fact is that there's a looming end-date for NLY, CIM, and other REITs' sky-high yields. There's no question about it. If there wasn't, their yield would not be so so high, as buying demand for the REIT stocks would drive the prices up (lowering the yield.)

    Meanwhile YUM, WMT, and HAS have clear, blue skies ahead of them. I believe investors who are thinking about retirement in the next 10 years should graviate to dividend payers like these -- ones that grow steadily and safely.

    Again, thanks for both of your takes. We may disagree but I respect your opinion. Foolishly -- Jeremy

  • Report this Comment On December 22, 2010, at 10:35 PM, MiserableOldFart wrote:

    Don't like MallWort because of ethical considerations. Looking at the charts for the other two, they both appear to be five year highs, not my idea of the kind of stock I want to buy now. Twelve or twenty-four months ago, yes, but imho, these are yesterday's news. I will stick with CIM and sell when I think the time is right.

  • Report this Comment On December 22, 2010, at 10:50 PM, MiserableOldFart wrote:

    The two stocks I chose for long term dividends are TOT and STO, both of which pay substantially more dividends, which should be pretty safe long term. These stocks are well off their five year highs, and much closer to their 52 week lows than highs when I purchased them. They are probably not good for 20 years or more, but for the next five or ten, I'll bet on 'em. I also chose RGR for the same reason, but was "forced" to sell when it went high enough that I didn't think it would stay there.

  • Report this Comment On December 23, 2010, at 12:16 AM, pkluck wrote:

    There is no substitute for oil and there won't be for decades, once nobama stops all drilling in America the oil companies will print even more money. Why anyone wouldn't buy oil stocks and collect their 4% to 7% dividends with future growth is beyond me. Go ahead and buy Pizza Hut with it's puny 2% dividend. If Pizza Hut increases it's dividend 10% per year every year after 10 years it will yield a little over 5%. You can do better.

  • Report this Comment On December 23, 2010, at 4:13 AM, exdividendday wrote:

    Trust in brands and dividends. Most stocks with a 50-year performance of more than 5000 percent had strong brands and paid consecutive rising dividends. Remember MCD, KO, PG, GE, DIS, K and all the other global brand companies.

    I researched 16 stocks with highest global brand value. I excluded stocks like GOOG or AAPL due to the fact that they don't pay dividends. Here are my results:

    The average dividend-yield of the brand owner stocks amounts to 2.37 percent while the average P/E ratio is 16.85.

  • Report this Comment On December 23, 2010, at 9:00 AM, mikecart1 wrote:

    The writer of this article didn't attend simple math class in elementary school. At a 2% dividend and with the average person say making $60K/year. With reinvestment, that homie ain't retiring in 2020. Maybe retiring from being a Motley Fool subscriber lol.

  • Report this Comment On December 23, 2010, at 9:07 AM, madmilker wrote:

    You write this:

    [My intent of this article was to help investors set themselves up for safe retirement income 10 years from now, while still having a strong chance for growth.]

    and in the same article type about Wal*Mart.


    No stores left in Germany....that ain't growth.

    No stores left in South Korea...that ain't growth.

    Six straight quarters of declining same store sales in America....that ain't growth.

    Closing the office in Russia....that ain't growth.

    Do you remember the last year that they didn't sell bonds before or shortly afterward a dividend announcement.

    And what about the fact of them putting less than 5% foreign in all their stores in that a dividend for the other 182 countries that make items for the world to buy including the United States of America.

    and making that deal on a port in Mexico was just plain wrong in the eyes of all Americans.

  • Report this Comment On December 23, 2010, at 9:29 AM, BioBat wrote:


    Any oil stock is going to get you substantial dividends and given their position and the deamnd for oil should grow over the next 5-10 years without much of a sweat but as we saw recently with BP and 20 years ago with XOM - each and every oil company is only one serious mishap from their stock going in the crapper.

  • Report this Comment On December 23, 2010, at 9:41 AM, MsAriel wrote:

    Just checked at NYSE, and HAS appears to be delisted. Any idea what happened?

  • Report this Comment On December 23, 2010, at 11:24 AM, aqualen wrote:


    For those of us who are (or should be) thinking seriously about retiring in the next 10-20 years, this is a terrific strategy. Particularly when one considers the potential tax implications (given today's tax structure), buy-and-hold great brands that should continue to throw off larger and larger dividends over the next couple decades has great potential to generate another source of retirement income, and one that at least has the potential to receive preferential tax treatment (and reduce trading fees to one purchase transaction).

    Given that this is a lifetime bet...would more than 3 stocks be warranted? Would enrolling in direct purchase + dividend reinvestment (aka DRIP) be the very best route for most investors?


  • Report this Comment On December 23, 2010, at 11:50 AM, TMFMoby wrote:

    aqualen - Thanks for the comment. More than 3 stocks are warranted if you wanted to place a significant amount of your retirement portfolio in this strategy.

    It really depends what percent of your entire retirement fund is in stocks vs. other asset classes like bonds or even cash.

    Personally, I wouldn't do more than 10 stocks devoted to this particular strategy. If you want that kind of diversification, then I'd suggest looking at an index fund focused around dividend paying stocks.

    If you want a basket of 6 or 7, consider looking at MCD, WM, NUE, MSFT in addition to the ones above. But by the time you have MSFT and WMT in the same portfolio, you're getting closer to an index fund.

    Definitely take a look at our dividend free report for 13 other names:

    As far as dividend reinvestment, I use Schwab:

    Have a Foolish holiday!


  • Report this Comment On December 23, 2010, at 11:53 AM, TMFMoby wrote:

    MsAriel - HAS is on the Nasdaq. I had mistakenly labeled it as NYSE in the article -- which our rockstar copy team has now fixed. Sorry about that.


  • Report this Comment On December 23, 2010, at 12:07 PM, TMFMoby wrote:

    pkluck - You said "Go ahead and buy Pizza Hut with it's puny 2% dividend. If Pizza Hut increases it's dividend 10% per year every year after 10 years it will yield a little over 5%. You can do better."

    Yum (the parent of Pizza Hut) has increased its dividend by a compounded 33% per year. That puts it at 6.25% in four years and above 10% in 6 years.

    Exxon is growing its dividend at 9% per year, Chevron 10%, Apache 12%, Halliburton 7%.

    Remember, my goal was to highlight companies growing their dividends quickly and safely for 2020 retirees. Energy companies did not meet my standards as they are not growing their dividends at as rapid a pace at the companies I mention. I also don't believe speculating on the underlying asset [oil and natural gas] growth is appropriate for 2020 retirees looking for income.

    Thanks for the comment,


  • Report this Comment On December 23, 2010, at 12:10 PM, bwampler wrote:

    What about ADP and JNJ? Both have dividends over 3% (at least 50% higher than these), LONG histories of increasing dividends, and probably some of the best cash flows and financial stability in the world. ADP is one of only 4 co's AAA rated by Moody's and S&P.

  • Report this Comment On December 23, 2010, at 12:24 PM, bwampler wrote:

    Jeremy, by the way, I do like your article, especially that you took dividend CAGR into account. My comments above are just out curiosity, and how or why they didn't come out above YUM, HAS, or WMT in your analysis.

  • Report this Comment On December 23, 2010, at 3:05 PM, TMFMoby wrote:

    Hi Bwampler - either of those would be great additions. In fact both are recommendations over in Income Investor.

    It comes down to personal preference and your knowledge of the underlying business.

    I prefer a bit faster dividend growth (JNJ 11% and ADP 17%) and I know less about their businesses and growth opportunities.

    If you value greater stability and longer histories, as you correctly pointed out, and you have confidence in the underlying business, then swap those companies in.

    Fool on!


  • Report this Comment On December 23, 2010, at 3:54 PM, allenman75002 wrote:

    Hope that MCD will do the same as Yum

  • Report this Comment On December 23, 2010, at 3:57 PM, jxlot077 wrote:

    Do you plan on writing an artfile for people who want to retire in 30 years or would you reccomend the same stocks? I really like YUM as a company but am concerned that the stock price now is really high and that the company is not worth what it would cost to buy some stock in it at the moment. Is there a price you would reccomend buying into the company or would you reccomend buying into YUM now ? Thanks

  • Report this Comment On December 23, 2010, at 4:07 PM, ballsybert wrote:

    One of my favorites, which also happens to be in the dividend aristocrats list, is KMB, with a current div yield of 4% and a P/E around 13.

    It's #6 in the aristocrats list:

  • Report this Comment On December 23, 2010, at 5:54 PM, bhughes1001 wrote:

    Good article. I am roughly 15 years from retirement, and am implementing this by putting a portion (about 25%) of my portfolio in this strategy. I own Hasbro, Waste Management, Abbott Labs, and plan to add either YUM or PEP this month. SA picks Nucor and Wasco also have a record of increasing dividends steadily, and I own those as well. The rest of my non-mutual fund portfolio is in SA picks that are more growth oriented. Over the years, I can rebalance by feeding more cash into the steady dividend payors. Added benefit - reduced volatility as I get closer to retirement.


  • Report this Comment On December 29, 2010, at 12:08 AM, steve1204 wrote:
  • Report this Comment On December 29, 2010, at 12:40 AM, steve1204 wrote:

    Better to have international spread! Nestle will be here in 10 years, increasing dividend and not focused on the dollar. Increasingly environmentally responsible.

    Div about 3%.


  • Report this Comment On December 29, 2010, at 8:33 AM, rw1270 wrote:

    These guys are driving me crazy. NAT is NOT funding dividend from stock issuing. They use new stock to BUY SHIPS!! They grew from 3 to 19 and are scheduled to take another 3 ships. A little examination of balance sheet would reveal it, Mr. Author. They fund their dividend from FREE CASH FLOW, which is roughly EARNINGS+DEPRECIATION (or from the other side revenue minus operating cost minus tax minus interest). Ships cost $50 to $100 milion each and have to be expensed over time. Last quarter they lost (GAAP) 12 cents, but had about 34 cents of depreciation (those SHIPS!), which gives 22 cents of free cash already. They paid 25c, certainly NOT from new stock issue. Sometimes they do distribute a leftover cash from buying, but that is usually one time kind of thing.

    Just read the stinking statement, not regargitate crap written by other, because you are too lazy to check the facts yourself, Mr. Author.

  • Report this Comment On December 29, 2010, at 11:57 AM, lnlz711 wrote:

    I agree with rw1270, I believe Fool should concentrate on giving its clients their analysis and not throw out all these comments from unknown people. Please stick to your analysis and do not emphasize others' ideas. Also try to minimize your passed performance literature and concentrate on future stock performance predictions. I want to see where I am going not where I've been. Stop blowiung your bugle, PLEASE!

    Leo Z

  • Report this Comment On December 29, 2010, at 3:48 PM, rw1270 wrote:

    Thanks, Leo.

    To reiterate, main reason I like NAT because of its very honest business model, in which you make money (dividend) when rates are high and don't when they are low. No debt, no games, no hedging, no derivates. The stock is essentially future shipping rates call with big payoffs (dividends may be enormous) if they go up, but has no real danger of collapse if rates are low (no appreciable debt) - at worst it will not pay the didvidend for those lean quarters and experience moderate stock loss supported by value of their ships. With no debt, their ships are still worth something, and it needs very little money to sustain its operations through those lean quarters, just key personnel and some docking fees. They could literally shut down operations if rates are too low and suffer very little loss (according to them they need 10-12K/day rates to break even on free cash flow basis)

    I think the major issue with NAT is that its business is similar to MLPs, but not many people understand basic concept of full return of capital to current shareholders and financing growth (new ships) by inviting new investors (new shares) rather than by debt and earnings retainement. Another issue is American investor is used to "safe" dividend payout and periodic dividend raise and they freak out if they see floating dividend. Seems like even so-called experts can't grasp a simple concept of free cash flow and full return of capital. This model is very different from most companies so you constantly read those foul play and bogus "dividend blowout" warnings on "expert" opinions.

    It is much simpler - if you think oil shipping business is bad, don't buy NAT because they will not pay dividend or will pay very small one. No promises of making money "no matter what", but if the conditions are favorable, the payout is huge - NOT by new shares, but by simple free cash flow.

  • Report this Comment On January 04, 2011, at 4:12 PM, mkmmmm12 wrote:

    you are way off track.......really givng people bad advise or not good advise ....what about cvx...xom....t....just to name a few that have better dividends than what yo'ure promoting.... high school advise at best...mike

  • Report this Comment On January 08, 2011, at 4:49 AM, martinhill66 wrote:

    Beware of very high dividend yields. There are plenty of stocks available that still pay a respectable and sustainable dividend. Check out the top 250 here:

  • Report this Comment On January 24, 2011, at 11:07 AM, asspen wrote:


    regarding NAT, you are wrong.

    You completely disregarded depreciation. What will happen when their ships turn 20-25 and need to be scraped? They will have less ships but same number of shares (in the best case).

    NAT, in the long run, is a very bad investment.

    You can read my articles about in on SA:

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