So you want a stock for your retirement portfolio with a good dividend yield -- well covered by earnings and free cash flow -- and you want to buy it at a good valuation too? Look no further than German industrial giant Siemens (OTC:SIEGY), construction and mining machinery company Caterpillar (NYSE:CAT), and food company Hormel Foods (NYSE:HRL). All three have strong track records of rewarding investors with dividends and good growth prospects.

Don't overlook Siemens

Investors can gain exposure to Europe's largest industrial company via a U.S. listing -- not a bad idea when the stock is yielding around 3.4%. While its fierce rival, General Electric, has floundered in recent years, Siemens' management has patiently restructured its portfolio toward long-term growth markets such as industrial (factory) automation and process automation (automated control of raw materials). The company is the global leader in both markets.

If you believe in the increasing penetration of automation and that robotics in manufacturing will be enhanced further by the adoption of Internet of Things functionality, then you believe Siemens has a bright future.

A pile of cash.

Buy dividend-paying stocks and watch the cash pile up over time. Image source: Getty Images.

As you can see in the table below, digital industries (automation and software businesses) is the key profit driver of the business, with management having spun off (but retained stakes in) its healthcare and renewable energy businesses.

Meanwhile, Siemens tried to merge its rail business with Alstom and has plans to spin off its gas and power business after it's combined with its remaining 59% stake in Siemens Gamesa. Management recently said it intended to reduce its stake in the combined gas and power/Siemens Gamesa stake business to 25% over time.

Business Unit

2019 EBITA

Activity

Digital industries

2.880 billion euros

Industrial automation, process automation, industrial software

Smart infrastructure

1.500 billion euros

Electrification products, grid solutions, industrial controls, building controls

Mobility

983 million euros

Rail stock, signaling equipment, rail electrification products

Gas and power

679 million euros

Power generation equipment and services, power transmission, oil and gas infrastructure

Siemens Healthineers* (OTC:SMMNY)

2.461 billion euros

Medical technology (imaging, diagnostics, advanced therapies)

Siemens Gamesa Renewable Energy** (OTC:GCTAF)

482 million euros

Wind power

Data source: Siemens presentations. EBITA = earnings before interest, tax, and amortization. *Siemens owns an 85% stake. **Siemens owns a 59% stake.

Even though the automation sector is currently challenged by slowdowns in automotive production and in the industrial sector, it's likely to grow over time as automation levels in manufacturing in places like China catch up with countries like Korea and Japan. Meanwhile, cash flow from the Siemens Healthineers stake and the relatively stable smart infrastructure business will help offset any cyclical weakness in industrial-focused businesses.

Turning to the specifics of the dividend, the dividend payout of 3.90 euros in 2019 puts Siemens slightly above its targeted range of 40% to 60% of earnings in dividends, but it's worth noting that the company's free cash flow of 5.2 billion euros easily covers the 3.3 billion paid in euros in 2019. In other words, Siemens' dividend looks easily sustainable.

With the U.S. listing currently yielding 3.4% and good prospects for long-term growth, Siemens is worth picking up for investors looking for dividend income.

Caterpillar is a good value option

If you can ignore the inevitable share price volatility that comes with holding a highly cyclical stock, buying Caterpillar for its dividend looks like a good idea.

Caterpillar is certainly facing some near-term headwinds, not least from slowing construction end markets and reluctance among mining customers to aggressively invest in capital machinery. Indeed, analysts have Caterpillar's earnings per share flatlining in 2019 and 2020 at around $10.80.

But here's the thing. The dividend payment is currently $4.12 per share, meaning that it is amply covered by earnings. Moreover, CFO Andrew Bonfield projects that the company's free cash flow generation will range from $4 billion to $8 billion, compared to the dividend payment of $2 billion in 2019. Caterpillar is committed to raising its dividend by high single digits in every year for at least four years. In fact, Caterpillar is a Dividend Aristocrat, having raised its dividend every year for more than 25 years.

Obviously, if the global economy does fall into a protracted slump and/or infrastructural spending in China slows markedly -- aside from construction machinery demand, the country is the swing factor in commodity demand and therefore in mining machinery demand -- then Bonfield's projections could come under threat. However, if the global economy grows in line with historical norms, Caterpillar has the capability to grow its dividend for many years to come.

Hormel Foods

Hormel Foods is best known for Spam and more than 40 other food brands. Only 16% to 18% of sales come from nonmeat brands (including Skippy peanut butter), with pork-based products contributing 50% to 55% and turkey 18% to 22%, followed by beef with 8% to 10%. As such, Hormel is a play on the U.S. consumer eating protein; only 7% of sales are international.

Hormel is also a Dividend Aristocrat that has increased its dividend for the last 54 years -- and has done so by double digits for the last 11 consecutive years -- while maintaining a rock-solid balance sheet. As you can see in the chart below, its annual net income dwarfs its net debt, and operating income margin is on a nice uptrend.

HRL Operating Margin (TTM) Chart

HRL Operating Margin (TTM) data by YCharts.

But the good news doesn't stop there, because the company has been using its strong cash flow generation to invest in growth. For example, since 2016, around $1.4 billion has been invested in acquisitions and $900 million in capital expenditures -- with 75% of it going toward growth spending rather than merely maintenance spending.

Moreover, management has plans to invest a further $1 billion in the next three years. Given the company's sector-leading track record of generating return on its invested capital, it's a good bet that its investment in brands like Skippy, Hormel Chili, and Hormel pepperoni, along with its supply chain improvements, will bear fruit and spur earnings growth.

HRL Return on Invested Capital (TTM) Chart

HRL Return on Invested Capital (TTM) data by YCharts.

Three stocks for a retirement portfolio

All told, Siemens (3.4% yield) is restructuring and positioning itself for long-term growth while paying a generous dividend, Caterpillar (2.8% yield) has a sustainable dividend that can increase over time, and Hormel Foods (2.1% yield) is investing for growth from a position of strength. All three are good candidates for investors looking to generate some income in their retirement portfolios -- not least because they offer good dividends and the prospect of dividend growth.