The big switch that most people think about when they consider retirement is going from working every day to not working at all (or at least reducing work). But there's another huge change that you have to consider -- and that's shifting from building a nest egg for retirement to using your nest egg to fund your retirement.
Dividends can help create a valuable passive income stream to help supplement your Social Security checks. Hormel Foods (HRL -0.23%) and Realty Income (O 0.97%) are two ultra-reliable dividend payers that you'll want to look at to help you safely fund a happy retirement.
1. Low, but growing fast
The first thing that most dividend investors look at is dividend yield, the higher the better. But don't get caught in that trap. Sometimes a lower, fast-growing yield is more attractive. And that's what you'll get at protein-focused food maker Hormel. The yield today is around 2.1%, which is actually toward the high side of the company's long-term yield range. That suggests that it is relatively cheap right now.
But the more important dividend fact is that this Dividend King has increased its annual payout for 56 consecutive years, at an over 10% annualized clip over the past decade. That's huge, taking the dividend from $0.30 per share per year in 2012 to an expected $1.04 per share this year. If you are looking for a safe haven from inflation, Hormel's rapid dividend growth can help.
But this story isn't just about dividends. Hormel has a collection of industry-leading brands in its portfolio, including SPAM, Planters, Columbus, and Wholly Guacamole, among many others. It has strong relationships with grocery stores, quick service retailers (like gas stations), and restaurants (including a direct selling force dedicated to the food service space). And while the company's business is dealing with inflationary headwinds today, which is a big part of the reason for the historically high yield, it is still operating very well. For example, it reported record sales in the fiscal second quarter of 2022.
To be fair, the news wasn't all good. Organic volume was down because of the price increases used to offset higher costs. And even then, the company's margin shrank from 11.1% a year ago to 10.8% in the fiscal second quarter. However, timing mismatches are common during periods of inflation as the company works to pass higher prices on to customers. This too shall pass, and dividend investors willing to deal with a little uncertainty now should be well rewarded over the long term.
2.The Monthly Dividend Company
Realty Income has taken some important steps to differentiate itself from its net lease real estate investment trust (REIT) peers. For example, it owns a portfolio of more than 11,000 properties, easily leading the pack with regard to scale. That, added to its huge $40 billion market cap, gives it the ability to take on deals that others couldn't easily accomplish. For example, it recently agreed to buy a Boston casino for $1.7 billion, a massive single property that will only account for around 3.5% of the REIT's overall rent roll. Smaller peers couldn't make such a material move.
Helping that along is the REIT's investment grade rated balance sheet, which helps it get cheap debt capital. And the historical premium at which the company's stock trades relative to peers helps ensure low-priced equity capital. That said, the yield is still a generous 4.2%. And the monthly pay dividend has been increased at a healthy annualized clip of 4.4% since 1995, including 27 consecutive annual dividend increases (Realty Income is a Dividend Aristocrat).
This is a slow and boring grower, for sure, but that's the type of foundation that retirees will appreciate as a complement to higher-growth names like Hormel.
The net lease business model, meanwhile, is just as important as all of the other stats here. Realty Income owns single tenant properties for which the tenant is responsible for most operating costs. Any one property is high-risk, but given the REIT's giant portfolio, the overall risk here is minimal. And with Realty Income's scale and cost advantages, it is likely to remain the industry leader for years to come. That should help it easily live up to its self-chosen nickname, The Monthly Dividend Company, and keep your income stream secure.
Time to dig in
If you are looking for dividend stocks that will hold up over time, then Hormel and Realty Income have proven they have what it takes to keep rewarding investors with growing payments. Hormel is a dividend growth name that will help your income stream keep up with inflation. Realty Income provides a mixture of a more generous yield and modest growth, which can provide a cornerstone on which to build a more diversified portfolio. Both are worth strongly considering as you look to create a safe and reliable income stream to fund your retirement.