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3 Dividend Stocks Ideal for Retirees

By Reuben Gregg Brewer - Mar 13, 2021 at 10:21AM

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Looking to live off of your dividends in retirement? This trio of consistent dividend payers should be on your short list.

Dividends are a great way to supplement your income in retirement, but you need to be careful to find a good balance between yield, dividend growth, and safety. That's not an easy mix to achieve, but it can be done. Here are three stocks that dividend investors will find are ideal fits for retirement.

1. Slow and steady

The first name up is real estate investment trust (REIT) Realty Income (O -1.30%). This landlord, which generates most of its rents from single-tenant retail properties, has increased its monthly-pay dividend annually for over 25 years now, making it a Dividend Aristocrat. The yield, meanwhile, is a relatively generous 4.6% -- while the S&P 500 Index is offering a yield below 2%. And it increased its dividend each quarter in 2020, an impressive feat for a retail landlord given the coronavirus pandemic. 

A man in a suite shooting hundred dollar bills off of a pile in his hand.

Image source: Getty Images.

There are a couple of things to like here. First, Realty Income is a net-lease REIT, which means that its tenants are responsible for most of the costs of the properties they occupy. It's a fairly low-risk approach in the REIT sector. Second, Realty Income is one of the industry's top names, with a portfolio of nearly 6,600 properties, and no single property is all that important to the overall business. Third, it has a very low cost of capital, so it can make accretive deals even during tough times. To put a number on that, it is projecting $3.25 billion worth of acquisitions in 2021. In other words, slow and steady growth here is likely to continue without a hitch despite what has been a terrible operating environment. That's the kind of thing that should excite a retiree looking for reliable dividend checks. 

2. Strong enough to handle it

The next name here, 3M (MMM 1.05%), is an industrial sector icon -- you likely have some of its products in your home. In fact, many of its best offerings were developed in-house: 3M has long focused on using its research and development efforts to support long-term growth. In all fairness, the industrial company is a cyclical one, so its business waxes and wanes along with the broader economy. Thus 2020 wasn't a great year, but management is already talking about a rebound in 2021, with sales expected to grow between 5% and 8%.

3M has increased its dividend for over 50 consecutive years, making it a Dividend King. The yield, meanwhile, is 3.3%, toward the high end of the company's historical range.  

Before you rush in to buy, you need to understand that the relatively high yield isn't driven solely by pandemic concerns. It's mostly related to a pair of lawsuits the company is facing that could end up costing it a lot of money. This has been a lingering issue, and it isn't likely to go away anytime soon. But that's opened up an opportunity to buy a great company at a reasonable, perhaps even attractive, price. You just have to be comfortable that the company is large enough ($100 billion market cap) and financially strong enough (financial debt to equity is just 0.2 times, and it is investment-grade rated) to weather the hit it may take. If you are, 3M looks pretty attractive right now. 

3. Small but mighty

Hormel Foods (HRL -0.24%) might not excite many dividend investors given its relatively tiny 2% yield. That is fair, but it's worth noting that the yield is toward the high end of the food maker's historical yield range. Meanwhile, the protein-focused company has a long and successful history of managing iconic brands like SPAM and Skippy, and it works across multiple sectors of the industry, including food service, grocery, and increasingly convenience (the pending acquisition of Planters will materially increase its scale there). It also has a long history of conservatively managing its balance sheet, with a financial-debt-to-equity ratio of just 0.05. 

MMM Dividend Chart

MMM Dividend data by YCharts

Still bothered by the paltry 2% yield? Well, Hormel is also a Dividend King, which is nice, but there's something even more important here: Hormel has an impressive history of generous annual dividend increases. Over the past decade its annualized dividend growth was 16%. This adds up materially over time, as the chart above clearly shows. That growth, meanwhile, will help you keep up with inflation and help to balance out slower-growing but higher-yielding dividend payers you might own (like Realty Income). And that should be very interesting to a retiree looking to protect the buying power of the dividends they receive. 

A good mix

At the end of the day, all three of these dividend payers could make good additions to a retiree's portfolio. Realty Income is a slow and steady payer with a generous yield. 3M is out of favor, offering up a buying opportunity in a great name. And Hormel is relatively cheap and offers a fast-growing dividend.

That said, all three together could actually offer up a strong balance of yield and dividend growth to help you power through your retirement years.

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Stocks Mentioned

3M Company Stock Quote
3M Company
MMM
$147.32 (1.05%) $1.53
Realty Income Corporation Stock Quote
Realty Income Corporation
O
$68.28 (-1.30%) $0.90
Hormel Foods Corporation Stock Quote
Hormel Foods Corporation
HRL
$48.83 (-0.24%) $0.12

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

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