7 Dividend Stocks You Should Own in Retirement

If you've got retirement planning to do soon, put these income-producing names on your radar

By James Brumley, InvestorPlace Feature Writer

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For most people in their working years, investing is a matter of growth. Once an individual reaches their golden years, though, most retirement planning work calls for a portfolio with a sizable portion of healthy, income-producing dividend stocks.

As is always the case, though, finding the right dividend stocks is easier said than done.

To that end, if some serious retirement planning is in your near future, here’s a closer look at seven of the market’s best dividend stocks, with consideration for safety, consistency, rising yields and yields actually worth tapping into.

Not that growth should be ignored completely. A bit of decent capital-appreciation potential is also built into a couple of these names.

Dividend Stocks for Retirement: Coca-Cola (KO)

Dividend Stocks for Retirement: Coca-Cola (KO)KO Dividend Yield: 3.2%

One of Warren Buffett’s greatest tips is “buy what you know,” meaning invest in companies you understand and — ideally — buy products from. Coca-Cola (KO) is one such company. In fact, it’s one of the most broadly recognizable brand in the world, with Fortune recently naming Coca-Cola as the world’s 10th most-admired company.

Yes, it’s big … big to the point where it’s hitting a headwind of market saturation. That’s OK, though. Coca-Cola can use its size and muscle to keep itself in the top spot within the beverage world.

The counterargument is, the world is finally thinking healthier and choosing drinks besides sodas more often. Fear not. Coke also is the company behind Dasani water, Minute Maid, Power Ade, Honest Tea and more. That diversity keeps the company well-positioned for whatever consumer trends may come and go.

And as far as income goes, a decent 3.2% yield has earned KO a spot on this list of dividend stocks to own during retirement, particularly when its per-share payout is bound to grow over time.

The clincher is the official placement of a second-in-command to CEO Muhtar Kent. Finally “acknowledging” (read: the board of directors basically insisted) he was stretched too thin to lead by himself, the well-liked James Quincey was recently promoted to the role of COO. This should reinvigorate the company that’s starting to feel the tiring weight of its sheer size.

Dividend Stocks for Retirement: Altria Group (MO)

Dividend Stocks for Retirement: Altria Group (MO)MO Dividend Yield: 3.8%

As an investor, it can be easy to get sucked into the moral dilemma of holding so-called “sin stocks.” There’s just something about investing in smoking, drinking, and gambling stocks that keeps some people awake at night.

Those investors may want to think about the reality of the situation, though: Someone out there is going to own these names, and you refusing to own them doesn’t change the companies’ destinies one iota.

With that as the backdrop, cigarette maker Altria Group (MO) is a cash-generating machine.

Sure, with Altria yielding 3.8%, retirees can find better-paying dividend stocks. Most of those other income-producing names, however, come with some sort of catch. Either their underlying principal is at extreme risk, or they’re sensitive to interest rate changes, or they’re cyclical business and may not always be able to afford a dividend.

Not Altria Group, though. Altria is something of a rock when it comes to sales and earnings. On a scale of 0 to 99 (0 being most stable and 99 being least stable), Investors Business Daily reports Altria’s earnings consistency is a stunning 1. Never even mind the multidecade streak of rising annual payouts.

Dividend Stocks for Retirement: Health Care REIT (HCN)

Dividend Stocks for Retirement: Health Care REIT (HCN)HCN Dividend Yield: 4.75%

Whereas Altria had no “catch” for income-seeking investors, real estate investment trusts do have a catch. They’re usually sensitive to interest rates, and can be cyclical.

Not every REIT sets itself up for that potential headwind, however.

Take the uncreatively named Health Care REIT (HCN) as an example. It owns a combination of senior-housing facilities and healthcare properties, including everything ranging from office buildings to inpatient and outpatient centers, and more. All told, it owns 1,411 properties, and collects rent payments from their tenants like clockwork.

It may be the perfect business to be in for a long, long while.

For better or worse, the advent of the Affordable Care Act — you may know it better as Obamacare — has created a swell in demand for healthcare services, which in turn means the industry needs to up its supply, which in turn means it needs places to set up shop. That, coupled with the explosion in the number of baby-boomers who need senior housing and assisted-living housing, means Health Care REIT is positioned perfectly for the foreseeable future to remain one of the market’s top dividend stocks.

The kicker: HCN’s dividend yield of 4.9% is very well-protected, as 87% of its revenue comes from private payers, which tend to pay at least a little more generously than public payers.

Dividend Stocks for Retirement: Wells Fargo (WFC)

Dividend Stocks for Retirement: Wells Fargo (WFC)WFC Dividend Yield: 2.6%

With a yield of 2.6%, it’s not like Wells Fargo (WFC) wins any awards for a massive payout. But, being the nation’s biggest and arguably the best run bank, it’s a favorite among retirement planning professionals as well as one of Warren Buffett’s most-beloved holdings.

Indeed, WFC is the single-biggest holding in the Berkshire Hathaway portfolio, and the investment fund added another $382 million worth of it in the first quarter of the year. That brings Berkshire’s total Wells Fargo position up to a stunning $25.4 billion. (For the record, Coca-Cola is Berkshire Hathaway’s second-biggest holding.)

But still, at 2.6%, can’t retirees find dividend stocks that at least a little more fruit?

Maybe, though WFC shouldn’t be dismissed as a weak income play, largely because its dividend has been rising, and is poised to continue ticking higher.

Plus, since mid-2013, Wells Fargo has repurchased nearly $15 billion worth of its own stock. Not bad for a $294 billion company.

And there’s plenty more where that came from. As John Maxfield recently pointed out for The Motley Fool, Wells Fargo makes so much money that it’s actually struggling to find legal and effective ways to get it off of its books.

Dividend Stocks for Retirement: 3M (MMM)

Dividend Stocks for Retirement: 3M (MMM)MMM Dividend Yield: 2.8%

Highly diversified 3M (MMM) isn’t a name brought up very often in the midst of retirement planning.

Big mistake.

First and foremost, the breadth and depth of its diversification in some regards almost makes it a mutual fund in and of itself. It’s the company behind brand names like Scotch tape, Filtrete and Peltor, and it makes everything from utility-scale power grid equipment to medical thermometers to road reflectors and more. 3M always has something to sell to someone.

A close-second reason MMM is a solid retirement stock, though, is its dividend.

Those who know 3M well might balk at that idea. Its yield of 2.8% is actually on the lower end of all the dividend stocks under the microscope here. What 3M lacks in big dividends, however, is a freakishly consistent increase in the company’s dividend.

How freakish? MMM has upped its annual dividend for 56 years in a row now, and by more than a little. Its five-year dividend growth rate is an impressive 13%.

Better yet, 3M has become such an iconic dividend payer that many of its business decisions now prioritize sustainable, healthy dividend growth as the overarching consideration. In other words, MMM intends to hold its place as one of the market’s favorite dividend stocks.

Dividend Stocks for Retirement: AT&T (T)

Dividend Stocks for Retirement: AT&T (T)T Dividend Yield: 5.5%

One of the biggest criticisms of AT&T (T) as a solid name to hold during retirement is that it’s a commodity business, and commodities don’t always serve up wide margins.

If any company can make it work and work well, though, it’s AT&T, for one key reason: Like Coca-Cola, AT&T has the size, clout, and checkbook to keep competition at bay and command a bit of a premium price from consumes who view size as a sign of strength.

Calling a spade a spade, the approval of its merger with DirecTV (DTV) bolsters the bullish case for T by quite a bit.

CEO Randall Stephenson made no bones about with analysts last week, telling them, “As we begin to work through the cross-selling opportunities, we think there is very strong upside to the synergies.” By that time, DirecTV customers had already seen a promotion of AT&T’s wireless service. Presumably, AT&T customers will be approached about becoming DirecTV subscribers. All told, AT&T has 87 million wireless customers and DTV has 20 million cable-television subscribers, each of which could end up buying at least one more product from the combined companies.

All of a sudden, that 5.5% dividend looks like it could move much higher, real fast, catapulting AT&T shares to near the front of the line (if not all the way to the front) of great dividend stocks to own in retirement.

Dividend Stocks for Retirement: Realty Income (O)

Dividend Stocks for Retirement: Realty Income (O)O Dividend Yield: 4.7%

Last but not least, while it’s not wise to add too many REITs to a retirement portfolio, Realty Income (O) is another one of those income-producing real estate plays that can rival (and often outperform) the very best of conventional dividend stocks.

Like Health Care REIT, Realty Income avoids the bulk of the interest rate risks most REITs take on because it’s not a mortgage-backed REIT. It’s actually a landlord … and not even one for fickle individual consumers.

Realty Income caters to the business market, renting to clothing retailers, automobile dealers, schools, child care services, cinema companies, restaurants chains and more. It’s not just a broad base of customers — these tenants tend to sign longer-term leases and are far more motivated to stick around than individuals are if and when times get lean. Underscoring this diversity is the fact that its biggest customer still only drives 7.1% of its total revenue.

That’s not to say there’s nothing cyclical about O’s revenue stream, but it’s not as cyclical as your typical mortgage REIT is. In fact, Realty Income’s occupancy rate has never fallen below 96% of its total properties, even when the economy has been shambles.

Indeed, the biggest risk O shares pose to current and potential shareholders isn’t an internal one but an external one — the possibility of rising interest rates.

If alternative instruments with a similar risk profile start to offer yields comparable to the dividend yield of 4.8% that Realty Income presently offers, that could pull the value of O shares lower. On the flip side, even if interest rates do start to rise, it could be a while before the payout of 4.8% is rivaled, and odds are good that the same economic strength pushing interest rates higher will also push lease rates higher.

In other words, Realty Income can handily defend itself against most plausible rate-hike scenarios.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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