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Nearing Retirement? These Stocks Will Pay You for Life

By Lawrence Rothman, CFA – Oct 31, 2021 at 8:22AM

Key Points

  • These companies have not only survived for a number of years, they've thrived.
  • Each of these companies has a history of raising dividends consistently for many years.
  • These companies generate plenty of free cash flow to finance their dividend payouts.

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Investing in reliable dividend-paying stocks can produce the regular income that retirees need.

As your working days come to a close, you can take a moment to pat yourself on the back. Then you should examine your financial situation. After all, the end of a regular paycheck requires some adjustments.

Most likely, your focus will shift to generating regular income even while not being employed. While Social Security may help, the average monthly Social Security paycheck is less than $1,600 a month.

This is where dividend-paying stock investments can help. Obviously, you should take care to pick stocks that have the means to continue making payments (as well as periodically increase those payments) for years, in good economic conditions and in bad.

A couple sitting on a swing.

Image source: Getty Images.

Today, we are going to talk about three companies that all qualify as Dividend Kings, meaning they have increased their dividend payouts annually for at least fifty consecutive years. More importantly, these companies have the wherewithal to continue doing so.

1. Procter & Gamble

Procter & Gamble (PG -0.85%), a maker of consumer staple products in areas such as beauty, grooming, and baby care, manages dozens of well-known and popular brands. The company holds a 20% market share in the very competitive beauty products sector and sells 60% of the world's razors and blades. Its brands include Head & Shoulders, Gillette, Pepto-Bismol, Downy, and Pampers, just to name just a few.

These products help the company generate plenty of free cash flow -- $15.6 billion in the latest fiscal year that ended on June 30. This easily covered the $8.3 billion in dividends it paid out in fiscal 2021.

Demand for these products typically holds steady no matter what is happening with the economy. It's no wonder that Procter & Gamble has paid a dividend for more than 130 years. Earlier this year, the board of directors increased the quarterly payment by 10% to $0.87 a share. This made it 65 straight years that shareholders have received a dividend raise.

2. Target

Target (TGT -1.65%) is a retailing giant, selling a wide array of merchandise and generating billions in revenue ($93 billion in 2020). It differentiates itself from some competitors by offering dozens of its own exclusive brands along with selling other companies' products.

With an eye toward the future, management has been investing heavily in the digital channel. This includes acquiring Shipt, a same-day delivery platform, in late 2017.

As results attest, these efforts continue to pay off. Its second-quarter same-store sales (comps) rose by 8.9%. But digital comps were up by 10%, driven by same-day delivery service, which saw a 55% sales increase.

Turning to free cash flow, last year's $7.9 billion handily covered the $1.3 billion in dividend outlays.

In June, after announcing that it was raising the quarterly dividend by a sharp 32% to $0.90 a share, Target extended its streak of annual raises to 50 years. That means the company entered the rarefied world of Dividend Kings.

3. Coca-Cola

Coca-Cola (KO 0.57%) is so widely known, it sells four out of the five best-selling soft drinks in the world. But it also sells other beverages like enhanced water and sports drinks.

It may not sound like an exciting business, but it produces an exciting amount of free cash. Its free cash flow was $8.7 billion last year, despite the pandemic putting a big hurt on the company's away-from-home business. Despite the reduced revenue, Coca-Cola still had plenty of cash to cover the $7 billion in dividends it pays out.

The strong cash flow generation isn't a recent phenomenon, either. It's no wonder this stock has long been a Warren Buffett favorite. Nonetheless, you don't have to have the legendary investor's wealth to benefit from Coca-Cola's strong cash flow. Coca-Cola has long shared the wealth with shareholders, increasing dividends for 59 straight years.

Finding stocks that can pay you back in retirement

Investing in stocks can be risky, but with bond yields remaining so low for so long now, it's sometimes necessary. Picking great dividend stocks can be a viable alternative for producing reliable and growing income after your working days have ended. you just have to pick the right ones.

These three businesses have proven they prioritize dividends and have increased payments for many years through all kinds of economic environments. Their stock prices also generally don't suffer from as much volatility. That should help you truly relax in retirement, knowing that your investments are working for you.

Lawrence Rothman, CFA 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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