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Retired? 3 Dividend Stocks You Should Consider Buying

By Andrés Cardenal - Feb 14, 2016 at 7:41AM

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These high-quality companies with rock-solid dividends are great ideas for investors in their golden years.

Investors that are retired often gravitate toward high-quality companies with solid dividend payments. Dividends reflect the underlying strength of a business, and they also provide recurrent income from your portfolio. Three companies that bear this out are Wal-Mart (WMT 0.14%), Colgate-Palmolive (CL 0.57%), and McDonald's (MCD 0.96%).

Wal-Mart is built to last
Discount retail is a tough business, especially since the online retail revolution began changing the rules of the game. But Wal-Mart is the strongest player in the industry and has proven its mettle through good times and bad.

Analysts expect Wal-Mart to produce $483.4 billion in global revenue during the fiscal year ending in January 2016, reaffirming Wal-Mart's position as the biggest retailer on the Earth. The company has nearly 11,500 stores and employs approximately 2.1 million workers globally, meaning that Wal-Mart is also the world's largest private employer.

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This gargantuan scale allows Wal-Mart to negotiate conveniently low prices and flexible financial conditions with suppliers. It also means that the company spreads its fixed costs over a huge amount of items, giving it incredible economies of scale. Needles to say, low costs and competitive prices are a crucial strategic advantage in discount retail, and Wal-Mart is second to none on this front.

Wal-Mart has an impressive track record of dividend growth. It has increased dividends every year since 1976. Wal-Mart's stock currently yields around 2.9%, and its payout ratio is safely low at nearly 43% of earnings forecasts for the current fiscal year. Considering the company's fundamental strengths and its rock-solid trajectory of growing dividend payments, everything indicates that investors in Wal-Mart will be rewarded with sustained dividend growth in the years ahead.

Colgate-Palmolive can make you smile
Colgate-Palmolive is the undisputed leader in the global oral care market. Its management says that the company owns a 45% market share in toothpaste and 34.5% in toothbrushes around the world. Colgate-Palmolive has also done an amazing job expanding internationally, operating in over 220 countries and generating more than 80% of its sales abroad. Emerging markets produce nearly half of total revenue for Colgate-Palmolive. This can mean increased volatility in the short term, but also superior opportunities for growth in the coming decades.

Global currencies are losing value versus the U.S. dollar right now, and this is hurting Colgate-Palmolive's performance when expressed in U.S. dollars. But its underlying business is doing well when you exclude the impact from foreign-exchange headwinds. Organic sales, excluding currency fluctuations, grew 5% in 2015. Adjusted gross profit margin came in at 59% of revenue, an increase of 20 basis points from 2014 levels.

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Colgate-Palmolive has paid uninterrupted dividends since 1895, and the company has raised its dividend payments in each of the last 52 years. The dividend yield is not particularly high at 2.3%, but Colgate-Palmolive has a lot of room to increase dividends in the future given that its payout ratio is less than 55% of the company's earnings.

A delicious turnaround for McDonald's
McDonald's owns over 36,000 stores serving nearly 69 million customers in 100 countries. It's not easy to find growth opportunities once you reach that size and market penetration, but McDonald's has positioned its stores in many of the most transited locations in the world. And, like real estate, location is a major source of competitive advantage in the fast food business.

Due to market saturation and the trend toward healthier food, McDonald's has seen sales fall in the U.S. for several years. But since Steve Easterbrook became CEO in March 2015, the company seems to be moving in the right direction.

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Global comparable sales during the fourth quarter of 2015 grew 5%, and comparable sales in the U.S. jumped by a surprisingly strong 5.7%. McDonald's launched its all-day breakfast menu in the U.S. last October. This was a major driver for the company in its most important market. If McDonald's can accelerate sales growth on the back of successful product innovation, this could be a big positive for investors in the company going forward.

McDonald's has increased its dividend every year since 1976. Its stock yields around 3.1%, and McDonald's has rewarded investors with $9.4 billion in dividends and buybacks over the past year. The dividend payout ratio is also quite safe, in the neighborhood of 60% relative to earnings forecasts for 2016.

Andrés Cardenal has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
$262.56 (0.96%) $2.50
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
$129.04 (0.14%) $0.17
Colgate-Palmolive Company Stock Quote
Colgate-Palmolive Company
$80.52 (0.57%) $0.46

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

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