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3 Top Dividend Stocks for a Better Retirement

By Leo Sun – Jun 3, 2020 at 10:29AM

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Procter & Gamble and two other Dividend Aristocrats are still solid investments in a rough market.

The U.S.-China trade war, the COVID-19 pandemic, and the unrest across America have likely caused significant worry for many retirees who rely on their investment portfolios for stable income. However, people rarely make a profit by panicking, and the top Dividend Aristocrats -- stocks in the S&P 500 that have raised their dividend payouts for at least 25 straight years -- should weather these near-term challenges.

Today, we'll examine three top Dividend Aristocrats that can still offer retirees stability through this volatile time period for the market: Procter & Gamble (PG 1.79%), Kimberly-Clark (KMB 1.37%), and Coca-Cola (KO 1.12%).

A retired couple discusses their portfolio with a financial adviser.

Image source: Getty Images.

1. Procter & Gamble

Procter & Gamble, the consumer staples giant that sells billion-dollar brands like Bounty, Charmin, Crest, Head & Shoulders, Gillette, Pampers, Pringles, and Tide, has raised its dividend annually for over six decades.

P&G raised its dividend in April, even as many other companies slashed their payouts to conserve cash during the COVID-19 crisis. It currently pays a forward yield of 2.7%, and spent just 57% of its free cash flow on its dividend over the past 12 months.

P&G's organic sales and currency-neutral core EPS grew 5% and 15%, respectively, last year. For fiscal 2020, which ends in late June, it expects its organic sales to rise 4%-5%, and for its core EPS to grow 8%-11%.

P&G's confident guidance was buoyed by robust demand for household essentials like toilet paper, paper towels, diapers, and cleaning products during the pandemic -- which offset the weaker growth of its grooming and beauty businesses.

P&G's stock isn't cheap at 22 times forward earnings, but that premium is arguably justified by its well-diversified business, wide moat, and stable dividend payments. P&G delivered a total return of over 160% over the past decade, and will likely remain a resilient investment for retirees.

2. Kimberly-Clark

Kimberly-Clark is another consumer staples giant that remained resistant to the COVID-19 crisis. The maker of Kleenex, Cottonelle toilet paper, and Huggies diapers benefited from shoppers stocking up on paper-based products.

Its organic sales rose 4% in 2019 with growth across all global regions, and jumped 11% in the first quarter on COVID-induced purchases. Its adjusted earnings grew 4% in 2019, and surged 28% in the first quarter as both its volumes and net selling prices improved.

Kimberly-Clark didn't offer any full-year guidance like P&G, but analysts expect its revenue to stay roughly flat and for its earnings to grow 9%. It currently pays a forward dividend yield of 3%, it's raised its payout annually for nearly half a century, and it spent just over three-quarters of its free cash flow on that payout over the past 12 months.

Its stock trades at a reasonable 19 times forward earnings, and should remain an appealing defensive stock throughout the COVID-19 crisis and other upcoming macro challenges. It delivered a total return of over 240% over the past 10 years -- and should remain a solid stock for retirees.

3. Coca-Cola

Coca-Cola has raised its dividend annually for nearly six decades. It currently pays a forward yield of 3.5%, and spent less than half of its free cash flow on that payout over the past 12 months.

Two glasses of cola.

Image source: Getty Images.

Coca-Cola, like other soda makers, struggled with slowing demand for its sugary drinks as consumers pivoted toward healthier alternatives. However, Coca-Cola expanded its portfolio with new brands of juices, teas, bottled water, and other non-carbonated drinks. It also refreshed its flagship sodas with smaller cans and healthier versions with less sugar, calories, and caffeine; acquired coffee giant Costa Coffee; and experimented with new energy drinks and alcoholic beverages.

Coca-Cola's organic sales grew by 6% last year. They stayed flat in the first quarter, as COVID-19 disrupted "away from home" channels like restaurants, but that headwind should fade as businesses reopen.

Wall Street expects Coca-Cola's reported revenue and earnings to both decline 11% this year, but its organic growth -- which excludes acquisitions, divestments, currency impacts, and other variable expenses -- should look better. The stock has delivered a total return of more than 150% over the past decade, and it remains one of Warren Buffett's top holdings -- which strongly suggests it's a safe stock to "buy and forget" for most retirees.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The Coca-Cola Company Stock Quote
The Coca-Cola Company
$56.65 (1.12%) $0.63
The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
$128.51 (1.79%) $2.26
Kimberly-Clark Corporation Stock Quote
Kimberly-Clark Corporation
$114.08 (1.37%) $1.54

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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