Retirement investing is a bit different from regular investing, and not because it depends more on dividend investing. See, we’ve been led to believe inflation is 3%, when it’s really closer to 10%. That means that retired investors don’t think they need stocks that offer capital gains alongside dividends, but they most certainly do.
Dividend Aristocrats were an important part of the retired investor’s portfolio then, because their cash flow is not only so fantastic that they can continue raising dividends year after year, but because they also have enough growth in some cases to boost annual returns to that important 10% level.
I’ve got three Dividend Aristocrats that not only pay that yummy dividend, but that I think have a pretty decent shot at growing earnings enough that their stock prices should also rise to breach the 10% annual level.
Dividend Aristocrats for Retirement: Old Republic International Corporation (ORI)
Dividend Yield: 3.8%
The first stop for any retired investor, or a Dividend Aristocrats choice, should be an insurance stock like Old Republic International Corporation (NYSE:ORI).
ORI is not just an insurance company, but one that has such a long history, that it now offers just about every kind of insurance any individual or business could ever want. Businesses of all stripes insure with ORI: forest products, education, transportation, healthcare, commercial construction, financial services, real estate, energy and manufacturing,
Businesses can also grab the necessary insurance for officers and directors, employee fidelity, asset protection, surety and E&O. It also handles the consumer side, including the highest margin products like home and extended auto warranty, and travel accident insurance.
It pays a 3.8% yield, and earnings growth has run between 6% and 10% the past few years.
Dividend Aristocrats for Retirement: VF Corp (VFC)
Dividend Yield: 2.4%
VF Corp (NYSE:VFC) sounds about as boring of the Dividend Aristocrats as one can possibly find, and yet, you actually know its products. Ready? It’s just the name of the holding company for some of the most popular outdoor and shoe consumer brands in the country.
They own The North Face, Eagle Creek, Timberland and Vans. If you know these products, you also know them to be of really high quality — the kind of go-to stuff that serious outdoors people will buy.
These products have a big advantage, and it’s one of the reasons VF has been able to consistently generate cash flow and raise dividends. These are niche products, not subject to the usual whimsical tastes of other clothing retailers. They are name-brands associated with specific activities.
The dividend is 2.4%, and analysts see a five-year annualized earnings growth rate of 7.2%, which pushes the total return to just about 10%. Free cash flow is a bit erratic, but the payout ratio is never higher than 60%.
Dividend Aristocrats for Retirement: AbbVie Inc (ABBV)
Dividend Yield: 2.8%
AbbVie Inc (NYSE:ABBV) is the spinoff from Abbott Laboratories (NYSE:ABT). The great thing about a legacy bio-pharmaceutical company as one of the Dividend Aristocrats is that once it has enough drugs in the world, and continues to research more, it produces tons of cash flow.
ABBV in particular is in areas that show no signs of slowing down: immunology, oncology and virology therapies. Moreover, it’s trying to establish a foothold in neuroscience.
ABBV is a true growth stock on its own, with five-year annualized earnings growth pegged at 15%. ABBV has an active pipeline and it is truly amazing for a Dividend Aristocrat to also have this kind of growth. Add in the 2.8% dividend, and retired investors don’t have to shy away from a terrific stock with dividend and growth all wrapped into one package.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 1,800 articles on investing. Lawrence Meyers can be reached at [email protected].