For many Americans approaching retirement age, one of the most significant and potentially anxiety-inducing questions they face is: what is an annuity for retirement? An annuity is an insurance product that provides regular payments and is often included in retirement plans. They are mainly issued by insurance companies, where individuals typically invest a lump sum of money in exchange for a guaranteed income stream for the duration of their life, just like a pension or Social Security benefits. Annuities play an important role in financial planning, considering many Americans are not satisfied with the state of their retirement resources. In fact, a survey conducted by BlackRock revealed that 60% of employees expressed their concern about the possibility of outliving their retirement savings.
Due to high-interest rates and fluctuating market conditions, more and more people are investing in annuities for a reliable source of income during retirement and to mitigate the risk of outliving one’s savings. According to an estimate by an insurance industry group, LIMRA, sales of annuities reached their all-time record high of $385 billion in 2023, showing a remarkable increase of 23% compared to the preceding year. The report further mentioned that the sales set a new record in the fourth quarter of 2023, totaling approximately $115.3 billion. This shows that fixed annuities are a bedrock of retirement planning for millions of Americans, accounting for a significant portion of the nation’s retirement savings. According to a report by Bloomberg, these fixed annuities represent over $3 trillion of the country’s retirement funds.
While annuities have remained the top priority of retiree investors, one should keep track of how fast the insurance industry is evolving, with private insurance companies taking over the sector gradually. For this reason, analysts advise investing in stocks and bonds, especially in periods of high-interest rates. Aaron Brown, a former head of financial market research at AQR Capital Management, wrote an article for Bloomberg in 2023 advocating stocks and bonds in retirement planning. He said that diversified portfolios of stocks and bonds have historically delivered a yield of around 4% over the long term, keeping pace with inflation. These portfolios typically have low or no fees and offer high liquidity and flexibility. Over time, they tend to increase in value, even after accounting for inflation, allowing beneficiaries to pass on the legacy to their heirs. Here is what he wrote further:
“Inflation-adjusted life annuities have to offer higher rates than 4% for most investors to consider paying the often-high fees, while accepting the loss of liquidity and flexibility (as well as the complexities) of many contracts, and the loss of assets that can be passed along to their heirs.”
Within investing, dividend growth stocks are known for their reliability, particularly among retirees, as these companies consistently provide investors with steady streams of income. Retirees worried about what is an annuity for retirement should consider investing in dividend growth stocks. We have previously covered strong dividend payers for investors nearing their retirement age in Early Retirement Portfolio: 16 Stocks to Live Off Dividends Revisited. In another article on the subject, we reported how dividend growers have delivered strong returns over the years while providing a hedge against market downturns. The report mentioned that the S&P 500 Dividend Aristocrats Index, which tracks the performance of companies with at least 25 consecutive years of dividend growth, has outperformed the S&P 500 69.34% of the time during down months and around 43.6% of the time during up months.
The Procter & Gamble Company (NYSE:PG), AbbVie Inc (NYSE:ABBV), Colgate-Palmolive Company (NYSE:CL), and PepsiCo, Inc. (NASDAQ:PEP) are some of the best dividend growers to consider for retirement as these companies hold decades-long dividend growth streaks and have strong balance sheets. In this article, we will further take a look at some dividend stocks to buy instead of annuities.
What is an Annuity for Retirement? 15 Dividend Stocks to Buy Instead
We compiled this list by examining Insider Monkey’s database of 933 hedge funds, as of Q4 2023 and identifying companies that have consistently increased their dividends for a minimum of 15 consecutive years. From this pool, we specifically chose stocks with dividend yields of at least 1% as of April 28. The stocks are ranked in ascending order of the number of hedge funds having stakes in them as of Q4 2023. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).
Amcor plc (NYSE:AMCR) is a global packaging company that offers flexible packaging solutions for a wide range of industries. The company currently offers a quarterly dividend of $0.125 per share and has a dividend yield of 5.57%, as of April 28. It is one of the best dividend stocks for retirees worried about what an annuity is for retirement as the company has raised its payouts for 40 consecutive years.
At the end of Q4 2023, 21 hedge funds tracked by Insider Monkey reported having stakes in Amcor plc (NYSE:AMCR), compared with 23 in the previous quarter. These stakes have a total value of over $164 million. With over 9.2 million shares, Millennium Management was the company's leading stakeholder in Q4.
Enbridge Inc. (NYSE:ENB) is a Canada-based pipeline transportation company that is also involved in the generation of energy resources. On April 24, the company declared a quarterly dividend of C$0.915 per share, which fell in line with its previous dividend. Overall, it has been growing its dividends consistently for the past 29 years. The stock has a dividend yield of 7.48%, as recorded on April 28.
As of the close of Q4 2023, 28 hedge funds reported owning stakes in Enbridge Inc. (NYSE:ENB), down from 35 in the previous quarter. These stakes are collectively valued at over $424.3 million.
The J. M. Smucker Company (NYSE:SJM) is an American food company, based in Ohio. The company is well-known for its diverse portfolio of food, beverages, and consumer products. The company's quarterly dividend currently comes in at $1.06 per share for a dividend yield of 3.73%, as of April 28. It holds a 22-year streak of consistent dividend growth.
The number of hedge funds tracked by Insider Monkey owning stakes in The J. M. Smucker Company (NYSE:SJM) grew to 35 in Q4 2023, from 33 in the previous quarter. The consolidated value of these stakes is over $1 billion. Among these hedge funds, Millennium Management was the company's leading stakeholder in Q4.
An American insurance company, Chubb Limited (NYSE:CB) is next on our list of dividend stocks to consider instead of wondering what is an annuity for retirement. The company has been growing its dividends consistently for the past 30 years and plans to announce its 31st consecutive annual dividend growth this year. It currently pays a quarterly dividend of $0.86 per share and has a dividend yield of 1.40%, as of April 28.
Chubb Limited (NYSE:CB) was a part of 37 hedge fund portfolios at the end of Q4 2023, compared with 43 in the previous quarter, according to Insider Monkey's database. The stakes held by these hedge funds have a total value of more than $942.3 million.
The Clorox Company (NYSE:CLX) is a multinational consumer goods company that is mainly known for its household and cleaning products. The company offers a per-share dividend of $1.20 every quarter for a dividend yield of 3.28%, as of April 28. Its dividend growth streak currently spans over 20 years, which makes it one of the best dividend stocks on our list.
The number of hedge funds holding stakes in The Clorox Company (NYSE:CLX) jumped to 39 in Q4 2023, from 34 in the previous quarter, as per Insider Monkey's database. These stakes have a total value of over $1.5 billion. With over 1.7 million shares, Holocene Advisors was the company's leading stakeholder in Q4.
Retirees wondering what is an annuity for retirement should consider investing in Canadian Natural Resources Ltd (NYSE:CNQ), a Canada-based oil and natural gas company. On February 29, the company declared a 5% hike in its quarterly dividend to C$1.05 per share. This was the company's second dividend growth in the past year and it holds a 25-year track record of consistent dividend growth. The stock has a dividend yield of 3.94%, as of April 28.
As per Insider Monkey's database of Q4 2023, 41 hedge funds held stakes in Canadian Natural Resources Ltd (NYSE:CNQ), which remained unchanged from the previous quarter. The consolidated value of these stakes is roughly $2 billion.
United Parcel Service, Inc. (NYSE:UPS) is a Georgia-based multinational shipping and supply chain management company. The company pays a quarterly dividend of $1.63 per share and has a dividend yield of 4.42%, as of April 28. It is one of the best dividend stocks on our list as the company has been growing its dividends for the past 22 years.
At the end of December 2023, 46 hedge funds held stakes in United Parcel Service, Inc. (NYSE:UPS), up from 42 in the preceding quarter, according to Insider Monkey's database. These stakes have a total value of over $2.15 billion. Among these hedge funds, Viking Global was the company's leading stakeholder in Q4.
Caterpillar Inc. (NYSE:CAT) is next on our list of stocks for retirees thinking of what is an annuity for retirement. The global manufacturer of mining and construction equipment declared a quarterly dividend of $1.30 per share on April 10, which fell in line with its previous dividend. Its dividend growth streak currently stands at 29 years. The stock supports a dividend yield of 1.51%, as of April 28.
Insider Monkey's database of Q4 2023 indicated that 48 hedge funds held stakes in Caterpillar Inc. (NYSE:CAT), compared with 50 in the previous quarter. These stakes are collectively valued at over $5.46 billion.
7. International Business Machines Corporation (NYSE:IBM)
Number of Hedge Fund Holders: 50
International Business Machines Corporation (NYSE:IBM) is a New York-based technology company that offers a diverse range of products and services to its consumers. The company's current quarterly dividend comes in at $1.66 per share and has a dividend yield of 3.97%, as of April 28. It has raised its payouts for 28 years in a row.
According to Insider Monkey's database of Q4 2023, 50 hedge funds held stakes in International Business Machines Corporation (NYSE:IBM), compared with 53 in the previous quarter. These stakes are valued at nearly $2 billion. Ken Griffin's Citadel Investment Group was the company's leading stakeholder in Q4.
Lockheed Martin Corporation (NYSE:LMT) ranks sixth on our list of dividend stocks reliable for retirement. The American aerospace and defense company currently offers a quarterly dividend of $3.15 per share and has a dividend yield of 2.73%, as of April 28. It has been growing its dividends consistently for the past 21 years.
As of the end of Q4 2023, 58 hedge funds in Insider Monkey's database held stakes in Lockheed Martin Corporation (NYSE:LMT), down from 60 in the previous quarter. These stakes have a total value of more than $1.6 billion.
