As retirement approaches, ensuring financial stability becomes increasingly important for investors. Among the available investment options, consistent dividend payments are especially attractive due to their dependability and security. Dividends, which represent a portion of a company's earnings paid out to shareholders, provide a reliable income stream.
Dividend stocks are well-suited for retirees because they also offer protection during challenging times. A report by Morningstar highlighted that dividend-stock funds were well-prepared to endure the tech stock crash from 2000 to 2002, as they had minimal exposure to the sector. During that period, the Vanguard Total Stock Market Index suffered a cumulative loss of nearly 44%, largely due to significant declines in its growth stocks, whereas dividend stock funds experienced only about a third of that loss.
Due to their solid long-term performance in the past, dividend stocks are becoming a vital part of a well-rounded retirement portfolio for many investors. Strategically chosen dividend-paying stocks can offer stability during market declines and enhance gains during upswings by providing regular income that helps mitigate losses and amplify returns. In addition, they offer a hedge against inflation, which has become a growing concern due to rising costs of essentials like food and energy. Several top-performing companies have consistently increased their dividend payouts over decades. David Giroux, a portfolio manager at T. Rowe Price who oversees the firm's capital appreciation strategy, shared insights on dividend stocks in an interview with Barron’s. Below are some of his remarks:
“To have a retirement portfolio that has a significant component of stocks with attractive dividends makes a tremendous amount of sense. If the average company in the market can grow its earnings at 7% to 8% a year, your dividends should be growing at a similar rate.”
Analysts point out that while income and growth are crucial for retirees to maintain financial stability during a potentially long retirement, this approach has its limitations and may not be suitable for everyone. They advise building a portfolio that is diversified across various sectors and includes companies with strong cash reserves to support stock buybacks. Dave King, a senior portfolio manager at Columbia Threadneedle Investments, stressed the importance of straightforward diversification in an interview with Barron’s. He recommended holding at least eight stocks from different sectors, suggesting that while diversification doesn’t need to be overly extensive, it should include more than just a few stocks—ideally more than five, with representation from each major sector. King also advised that when selecting stocks, investors should not rely too heavily on Wall Street research. Instead, they should prioritize fundamental, time-tested factors like a company’s credit rating or the reputation of its management, which can provide key insights into the stability of its dividend payments.
A report by Franklin Templeton highlighted that over the past decade, dividends for the broader market index have steadily risen, with an average annual increase of just over 7%. In strong market periods, dividends have enhanced total returns, while in tougher years like 2020 and 2022, when returns were flat or negative, dividends provided stability and helped strengthen portfolio resilience.
Our Methodology:
For this list, we used a screener to select dividend stocks that have shown at least 10 years of dividend growth and are spread across various industries, making them suitable for a retirement stock portfolio. From the initial selection, we chose ten stocks, each from a different industry, all with yields of at least 2%. The stocks are ranked in ascending order of their dividend yields, as of January 6. We also considered hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
A stack of disposable diapers in the foreground with a mother and her baby in the background.
Kimberly-Clark Corporation (NYSE:KMB) is an American multinational consumer goods and personal care company. In the third quarter of 2024, the company posted revenue of $4.95 billion, reflecting a 4% year-over-year decline. The company is actively implementing its “Powering Care” strategy to foster innovation, reduce costs, and provide better solutions across different price points. Its efforts to streamline operations are designed to increase agility and responsiveness in the market. Despite the revenue decrease, the company is positioned to achieve strong growth in operating profit, margins, and earnings per share for 2024, with a focus on maintaining this momentum into 2025. In the past 12 months, the stock has shown a modest return of a little over 2.3%.
In 2024, Kimberly-Clark Corporation (NYSE:KMB) showcased strong cash generation. In the first nine months of the year, the company reported $2.4 billion in operating cash flow, an increase from $2.3 billion in the same period the previous year. Additionally, it returned $2 billion to shareholders through dividends and share buybacks.
Due to this strong balance sheet, Kimberly-Clark Corporation (NYSE:KMB) was able to grow its dividends consistently for 52 consecutive years. The company offers a quarterly dividend of $1.22 per share and has a dividend yield of 3.83%, as of January 6.
Insider Monkey's database of Q3 2024 indicated that 45 hedge funds held stakes in Kimberly-Clark Corporation (NYSE:KMB), up from 43 in the previous quarter. These stakes have a collective value of more than $1 billion.
Overall KMB ranks 5th on our list of the best dividend stocks for an early retirement portfolio. While we acknowledge the potential of KMB as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than KMB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
