Creating income from a nest egg is a question that many baby boomers are spending countless nights figuring out. Many are relying on financial planners who are selling them annuities or some variation of the popular four percent rule[1].

For my retirement strategy[2] I am relying on dividend growth stocks, which will provide dependable income, which increases over time and protects its purchasing power from inflation. I have a quantitative[3] and qualitative process, which allows me to screen the hundreds of dividend growth stocks and narrow the list of candidates to 30 -40 individual companies.

Dividend growth investing is not some recent fad, as many market commentators would make you believe. Some of the richest families in the US, which have kept their wealth for several generations, seem to be living off dividends. If I were to start a dividend portfolio today, I would include the following stocks listed below.

**Industrials**

**3M** (NYSE:MMM[4]) operates as a diversified technology company worldwide. The company has raised dividends for 54 years in a row, and has a ten year dividend growth rate of 6.60% per year. Currently, the stock is trading at 16.20 times earnings and yields 2.30%. (analysis[5])

**United Technologies** (NYSE:UTX[6]) provides technology products and services to the building systems and aerospace industries worldwide.The company has raised dividends for 19 years in a row, and has a ten year dividend growth rate of 15.30% per year. Currently, the stock is trading at 15.90 times earnings and yields 2.40%. (analysis[7])

**Information Technology**

**Automatic Data Processing** (NYSE:ADP[8]) and its subsidiaries provide business outsourcing solutions.The company has raised dividends for 38 years in a row, and has a ten year dividend growth rate of 13.10% per year. Currently, the stock is trading at 21.40 times earnings and yields 2.80%. (analysis[9])

**Health Care**

**Johnson & Johnson** (NYSE:JNJ[10]), together with its subsidiaries, engages in the research and development, manufacture, and sale of various products in the health care field worldwide.The company has raised dividends for 50 years in a row, and has a ten year dividend growth rate of 11.70% per year. Currently, the stock is trading at 15.30 times earnings and yields 3.30%. (analysis[11])

**Financials**

**Aflac** (NYSE:AFL[12]), through its subsidiary, American Family Life Assurance Company of Columbus, provides supplemental health and life insurance.The company has raised dividends for 30 years in a row, and has a ten year dividend growth rate of 19.30% per year. Currently, the stock is trading at 8.30 times earnings and yields 2.60%. (analysis[13])

**Realty Income** (NYSE:O[14]) engages in the acquisition and ownership of commercial retail real estate properties in the United States.The company has raised dividends for 19 years in a row, and has a ten year dividend growth rate of 4.20% per year. Currently, the stock yields 5%. (analysis[15])

**Materials**

**Air Products and Chemicals** (NYSE:APD[16]) provides atmospheric gases, process and specialty gases, performance materials, equipment, and services worldwide.The company has raised dividends for 30 years in a row, and has a ten year dividend growth rate of 11.80% per year. Currently, the stock is trading at 15.60 times earnings and yields 2.90%. (analysis[17])

**Consumer Staples**

**Clorox** (NYSE:CLX[18]) manufactures and markets consumer and professional products worldwide.The company has raised dividends for 35 years in a row, and has a ten year dividend growth rate of 11.30% per year. Currently, the stock is trading at 18.90 times earnings and yields 3.20%. (analysis[19])

**Coca-Cola** (NYSE:KO[20]), is a beverage company, engages in the manufacture, marketing, and sale of nonalcoholic beverages worldwide.The company has raised dividends for 50 years in a row, and has a ten year dividend growth rate of 9.80% per year. Currently, the stock is trading at 20.30 times earnings and yields 2.70%. (analysis[21])

**Kimberly-Clark** (NYSE:KMB[22]), together with its subsidiaries, engages in manufacturing and marketing health care products worldwide.The company has raised dividends for 40 years in a row, and has a ten year dividend growth rate of 9.50% per year. Currently, the stock is trading at 20.60 times earnings and yields 3.30%. (analysis[23])

**PepsiCo** (NYSE:PEP[24]) engages in the manufacture and sale of snacks, carbonated and non-carbonated beverages, dairy products, and other foods worldwide.The company has raised dividends for 40 years in a row, and has a ten year dividend growth rate of 13.60% per year. Currently, the stock is trading at 19.40 times earnings and yields 2.90%. (analysis[25])

**Procter & Gamble** (NYSE:PG[26]), together with its subsidiaries, engages in the manufacture and sale of a range of branded consumer packaged goods.The company has raised dividends for 56 years in a row, and has a ten year dividend growth rate of 10.80% per year. Currently, the stock is trading at 17.30 times earnings and yields 3%. (analysis[27])

**Wal-Mart** (NYSE:WMT[28]) operates retail stores in various formats worldwide.The company has raised dividends for 38 years in a row, and has a ten year dividend growth rate of 18.10% per year. Currently, the stock is trading at 14.70 times earnings and yields 2.20%. (analysis[29])

**Colgate-Palmolive** (NYSE:CL[30]), together with its subsidiaries, manufactures and markets consumer products worldwide.The company has raised dividends for 49 years in a row, and has a ten year dividend growth rate of 13% per year. Currently, the stock is trading at 21.40 times earnings and yields 2.30%. (analysis[31])

**Walgreen** (NYSE:WAG[32]), together with its subsidiaries, operates a network of drugstores in the United States.The company has raised dividends for 37 years in a row, and has a ten year dividend growth rate of 21.20% per year. Currently, the stock is trading at 18.70 times earnings and yields 2.70%. (analysis[33])

**Energy**

**ConocoPhillips** (NYSE:COP[34]) explores for, produces, transports, and markets crude oil, natural gas, natural gas liquids, liquefied natural gas and bitumen on a worldwide basis.The company has raised dividends for 12 years in a row, and has a ten year dividend growth rate of 15.10% per year. Currently, the stock is trading at 8.60 times earnings and yields 4.60%. (analysis[35])

**Enterprise Products Partners L.P.** (NYSE:EPD[36]) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the United States and internationally.The partnership has raised distributions for 15 years in a row, and has a ten year dividend growth rate of 6.70% per year. Currently, the partnership yields 4.80%. (analysis[37])

**Chevron** (NYSE:CVX[38]), through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide.The company has raised dividends for 25 years in a row, and has a ten year dividend growth rate of 9.60% per year. Currently, the stock is trading at 8.60 times earnings and yields 3.10%. (analysis[39])

**Consumer Discretionary**

**McDonald’s** (NYSE:MCD[40]) franchises and operates McDonald’s restaurants in the global restaurant industry.The company has raised dividends for 36 years in a row, and has a ten year dividend growth rate of 28.40% per year. Currently, the stock is trading at 17.70 times earnings and yields 3.20%. (analysis[41])

**YUM! Brands** (NYSE:YUM[42]), together with its subsidiaries, operates quick service restaurants in the United States and internationally.The company has raised dividends for 9 years in a row, and has a five year dividend growth rate of 17.80% per year. Currently, the stock is trading at 18.80 times earnings and yields 2.20%. (analysis)

**Utilities**

**Dominion Resources** (NYSE:D[43]), together with its subsidiaries, engages in producing and transporting energy in the United States.The company has raised dividends for 10 years in a row, and has a ten year dividend growth rate of 5% per year. Currently, the stock is trading at 17.50 times earnings and yields 4.10%.

**Piedmont Natural Gas** (NYSE:PNY[44]), an energy services company, engages in the distribution of natural gas to residential, commercial, industrial, and power generation customers in portions of North Carolina, South Carolina, and Tennessee.The company has raised dividends for 34 years in a row, and has a ten year dividend growth rate of 4.10% per year. Currently, the stock is trading at 19.40 times earnings and yields 3.80%. (analysis[45])

While diversification is important[46], I would advise against purchasing inferior stocks from sectors which are not exhibiting the strong fundamentals for long term dividend growth. In addition, diversification over time in the form of dollar cost averaging is important as well. While several of the companies listed above do not meet my entry criteria now, almost all companies met them at some point over the past year.

As a result, I have no exposure to the telecommunications sector. In addition, this portfolio is underweight in materials, information technology and industrials. The portfolio is overweight in consumer staples names however, which are defensive in nature. Since consumer use these companies’ products irrespective of whether the economy is expanding or contracting, these companies are well suited to be an overweight core of this portfolio.

*Full Disclosure: Long all stocks mentioned, except for PNY*