Warren Buffett’s retirement planning advice says that investors should stick with companies over the long haul (preferably companies that have a successful track record), even when the share price of stocks has their down moments.
Dividends are money paid regularly (usually quarterly) by a company to its shareholders out of its profits or reserves. Growing dividends by investing might be one of the best ways to pave the way for a successful retirement because you’ll ensure an income stream that flows to you during your golden years.
However, how do you know which dividend stocks to pursue and how to attain dividend growth? Let’s find out in this piece. We’ll outline three of the best dividend stocks for retirement and how to invest in them.
3 Top Dividend Stocks for Retirement
Let’s take a quick look at three of the best dividend stocks for retirement. Keep in mind that we’ve provided just a handful of quality dividend stocks on this list and there are far more opportunities for safe dividends on the S&P 500 index and other indexes. We’ve looked for dividends that have consistent earnings growth with a stabilized company and a high dividend yield.
The Coca-Cola Company, the beverage company of household renown, manufactures, markets, and sells beverages worldwide in its Atlanta, Georgia headquarters. You may not be aware of all of its brands, however. Besides the Coca-Cola, Diet Coke/Coca-Cola Light, and Coca-Cola Zero Sugar brands, the company manufactures and sells beverages under the Fanta, Fresca, Schweppes, Sprite, Thums Up, Aquarius, Ciel, dogadan, Dasani, glacéau smartwater, glacéau vitaminwater, Ice Dew, I LOHAS, Powerade, Topo Chico, AdeS, Del Valle, fairlife, innocent, Minute Maid, Minute Maid Pulpy, Simply, Ayataka, BODYARMOR, Costa, FUZE TEA, Georgia, and Gold Peak brands. Under these brands, it creates the following through a network of bottling partners, distributors, wholesalers, and retailers:
- Soft drinks
- Flavored and enhanced water
- Sports drinks
- Juice, dairy, and plant-based beverages
- Tea and coffee
- Energy drinks
- Beverage concentrates and syrups
- Fountain syrups
Coca-Cola had its initial public offering (IPO) on September 5, 1919, and has paid dividends for over 60 years — a great track record for anyone interested in guaranteed, regular payouts (and an investment that Buffett has long adored). The Coca-Cola Company is a Dividend King because it has paid and increased its dividend for at least 50 consecutive years. The company’s current dividend yield is 2.659% and the current dividend is 0.44%.
Headquartered in New Brunswick, New Jersey, Johnson & Johnson researches, creates, and sells various products worldwide related to health care. It creates consumer health, pharmaceutical, and medical devices products under various brands, including JOHNSON’S, ACUVUE, AVEENO, LISTERINE, CLEAN & CLEAR, DR. CI:LABO, NEUTROGENA, OGX, TYLENOL, SUDAFED, BENADRYL, ZYRTEC, MOTRIN IB, NICORETTE, PEPCID, STAYFREE, CAREFREE, and o.b., BAND-AID and NEOSPORIN. The company also creates products that address various diseases such as immunology, infectious diseases, neuroscience, oncology, pulmonary hypertension, cardiovascular and metabolic diseases, cardiovascular diseases, neurovascular care products, orthopedics products, and advanced and general surgery solutions.
The company sells to the general public, retail outlets and distributors, wholesalers, hospitals, and health care professionals.
Johnson & Johnson’s current quarterly dividend is $1.13 and its dividend yield is 2.33%. It is also a Dividend King, as it has had partnerships with investors for 59 years. It’s one of the best-performing stocks of all time and could be a great option to add to your dividend-heavy retirement portfolio.
JPMorgan Chase & Co., headquartered in New York, New York, operates under consumer and community banking, corporate and investment banking, commercial banking, and asset and wealth management. Its services include the following and more:
- Deposit, investment, and lending products
- Payments and services to consumers and payment solutions for small businesses
- Mortgage origination and servicing activities
- Residential mortgages and home equity loans
- Credit card, auto loan, and leasing services
- Investment banking products and services
- Loan origination and syndication
- Payments and cross-border financing
- Cash and derivative instruments
- Risk management solutions
- Securities services
- ATM, online and mobile, and telephone banking services
JPMorgan Chase’s dividend payments are $1 per share and the company has a dividend yield of 3.29%. As the Federal Reserve continues to raise interest rates due to pandemic fallout, bank stocks like JPMorgan Chase will be in favor of 2022 and beyond.
How to Pick Dividend Stocks for Retirement
We’ve named three great dividend stocks, but are you looking for other high-quality players instead? That’s fair.
In the past, investment professionals had suggested stock-and-bond mixes for retirees, such as a 60/40 mix of stocks/bonds or carefully crafted mutual funds as a less-risky alternative to individual stocks.
Since 2008’s financial crisis, the stock market has seen bull run-related hikes. There’s a new call for different weights (such as a 33/33/33 portfolio — a split between stocks, bonds, and alternative investments) and diversifying into even greater asset classes.
Alternative investments such as hedge funds, real estate investment trusts (REITs), commodities, and inflation-protected assets now prevail, but the reality is that stock-focused portfolios will continue to be the focus. How do you choose the best dividend stocks for retirement income?
Diversify
Diversification is still key even if you think you’ve discovered a promising dividend investing stock like Amazon or Apple. You don’t want to sink your entire life savings into one stock even if it is a Dividend King or a Dividend Aristocrat. Dividend payers can still suffer downturns. Consider investing in dividend ETFs, or a basket of stocks that track an underlying index. Spread your portfolio among many different sectors, such as healthcare, technology, industrial and other sectors. The professionals will always suggest looking at diversification right after they take a look at your risk tolerance, goals, and investment timeline.
Check the Dividend Yield and Fundamentals
While great companies will likely not give up their dividends, the quarterly amount may change. The dividend yield, which is tied to stock price, may change over time, so it’s important to get your calculator out and figure out the payout ratios of the dividend stocks you’re considering.
It’s also important to scour stock fundamentals before you invest as well. Take a look at the dividend yield formula, below:
Dividend Yield = Annual Dividend Per Share / Stock Price Per Share
As an example, let’s say a company offers an annual dividend of $1, and the stock trades at $35. In this case, the dividend yield is 2.8% ($1/$35).
What is a good dividend yield? Dividend yields between 2% to 4% fit into the range you want to see. Be wary of anything above 4%, because it can invite risk. It may be too high and unsustainable for the company. Bottom line: Avoid chasing yield.
When comparing stocks, it's important to look at more than just the dividend yield. Take a look at the company prospectus, earnings growth, balance sheet liquidity, return on assets, operating cash flow, and more.
Consider ETFs or Mutual Funds
Unless you’re a savvy stock picker, you may want to steer clear of choosing individual stocks, and this is what financial advisors do as well. Most of the time, they cherry-pick funds for their clients, usually favoring ETFs or mutual funds even at the risk of sacrificing heavy-hitting blue-chip stocks.
Funds can give you a balanced portfolio with potentially lower fees. Passively managed funds and ETFs charge the fewest fees and often perform right along with what the market is doing as a whole.
Here are a few dividend funds you may want to consider in lieu of purchasing individual stocks:
Get Help from a Financial Advisor
Dividend stocks are great for retirement because you can make a passive income stream for yourself. However, you may still not be sure how they fit into the larger picture. When you’re trying to decide on the best dividend stocks to buy and how much money you need to retire comfortably, you may want to find a financial advisor who can help you meet your goals.
Many financial advisors will steer you toward pre-made portfolios, but you can ask a fiduciary financial advisor if they will help you invest in individual stocks instead. Ask them about their track record as well as how they put together client portfolios based on individual stocks and stock-based funds.
Above all else, make sure you’re choosing the right advisor with the right mix of experience, success with other clients, and consistent growth to manage your portfolio.
Consider Choosing Dividend Stocks for Retirement
Warren Buffett, the Oracle of Omaha and one of the most successful investors of all time, has invested in dividend stocks with fervor. Dividend stocks among his prolific portfolio players are Johnson & Johnson (NYSE: JNJ), STORE Capital Corporation (NYSE: STOR), and Bristol-Myers Squibb Company (NYSE: BMY).
If you think you want to invest in dividend stocks for your portfolio, you can buy and hold them forever and live off the dividends. Just make sure you do your research first.
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Companies Mentioned in This Article:| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Coca-Cola (KO) | $61.88 | +0.5% | 3.14% | 24.95 | Moderate Buy | $67.22 |
| Johnson & Johnson (JNJ) | $146.60 | -1.3% | 3.25% | 9.14 | Hold | $175.86 |
| JPMorgan Chase & Co. (JPM) | $193.33 | +0.1% | 2.38% | 11.67 | Moderate Buy | $192.05 |
| Vanguard Dividend Appreciation ETF (VIG) | $176.22 | -0.4% | 1.69% | 24.56 | N/A | N/A |
| SPDR S&P Dividend ETF (SDY) | $127.81 | -0.5% | 2.50% | 19.41 | N/A | N/A |
| iShares Select Dividend ETF (DVY) | $119.92 | -0.8% | 3.72% | 12.98 | N/A | N/A |
| Schwab US Dividend Equity ETF (SCHD) | $77.40 | -0.9% | 3.31% | 14.82 | N/A | N/A |
| iShares Core Dividend Growth ETF (DGRO) | $0.00 | flat | N/A | N/A | N/A | N/A |
| ProShares S&P 500 Aristocrats ETF (NOBL) | $97.79 | -0.1% | N/A | 21.27 | N/A | N/A |
| STORE Capital (STOR) | $32.21 | flat | 5.09% | 27.77 | | N/A |
| Bristol-Myers Squibb (BMY) | $44.77 | -8.4% | 5.36% | 11.60 | Hold | $61.18 |
About Melissa Brock
Experience
Melissa Brock worked as an associate editor & contributing writer for DividendStocks.com from 2021 to 2024.
She currently works as a full-time freelance writer and financial editor covering higher education, investing, personal finance, mortgages, college savings, insurance, and more.
Areas of Expertise
Dividend Stocks, Retirement
Education
Bachelor of Arts in Communication Studies, Central College, Pella, Iowa
Past Experience
Melissa graduated summa cum laude with a bachelor of arts in communication studies with minors in psychology and Spanish from Central College. She's a longtime member of the National Association of College Admission Counseling (NACAC). While working in college admission, Melissa Brock pursued a freelance writing and editing career.