The best retirement stocks are those that have dividends that can be sustained by earnings over the long term. This means the company can afford to pay dividends out of income, and still have enough left over to cover its capital requirements.
Ben Graham, the original value investor, wrote that a public company should pay out a normal and consistent amount of its earnings. He argued that dividend payments should represent about two-thirds of earnings, with the rest left over for the business to reinvest. However, given today's high capex requirements, this ratio should probably be no more than 50% of earnings. This strategy will arguably allow for companies to have many years of dividend growth.
How we chose the best retirement stocks to buy
We kept Graham's argument in mind when seeking out the best stocks to buy for retirees. Firms that consistently increased their dividends create steady income and long-term value for investors.
We also targeted companies that have attractive dividend yields compared to the S&P 500's, which is currently around 1.6%. It also helps if a publicly traded firm returns value to shareholders through stock buybacks.
With that in mind, here are nine of the best retirement stocks to buy now. This list features companies that have 10 years or more of dividend growth and a 60% or less payout ratio. They also boast a dividend yield of at least 3% and have a history of buying back their own stock. What's more, these stocks are profitable, but currently cheap. This makes them good long-term retirement stocks.
Data is as of October 24. Payout ratios are calculated by dividing dividends by analyst estimates of this year's earnings per share. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.
Walgreens Boots Alliance
- Market value: $18.5 billion
- Dividend yield: 9.0%
- Dividend payout ratio: 57.5%
- Years of dividend growth: 47
Walgreens Boots Alliance (WBA, $21.37) is a global pharmacy and beauty retail chain. In the U.S., it operates Walgreens and Duane Reade stores. Overseas, it runs Boots stores, as well as other brands. WBA has over 13,000 locations in the U.S., Europe and Latin America with three operating segments: U.S. Retail Pharmacy, International and U.S. Healthcare. U.S. Retail Pharmacy accounts for over 79% of Walgreen's total sales, based on its fiscal 2023 figures for the period ending August 31.
It may make some sort of ironic sense for retirees to invest in a pharmacy stock. They probably spend more time there than most. As a result, Walgreens produces strong cash flow and pays a solid dividend of $1.92 per share, giving the stock an attractive 6.2% yield.
And the payout ratio is only about 57% based on analysts' current-year earnings estimate of $3.34 per share (i.e., $1.92/$3.34).
In other words, Walgreens has some wiggle room to reinvest in its business, pay down debt, make acquisitions and buy back shares. However, its stock buybacks are not as large as the dividend payments, as management's focus is on debt reduction for now.
As a result, the stock is cheap at just 6 times forward earnings, and boasts an affordable dividend payment that yields nearly six times more than the S&P 500. Moreover, with a 47-year streak of consecutive dividend hikes, it's easy to see why WBA is on this list of the best retirement stocks to buy now.
- Market value: $11.3 billion
- Dividend yield: 5.3%
- Dividend payout ratio: 50.2%
- Years of dividend growth: 42
Franklin Resources (BEN, $24.08) is a large money management firm that handles about $1.3 trillion in assets that include stocks, bonds, alternative and other multi-asset categories. Many retirees likely have their money in one of this company's funds, ETFs, 401(k) plans, etc. So, again, it makes sense to invest in the company. For example, one of its iconic brands is the Templeton funds group renowned for its international expertise.
Another attractive quality is the stock's 5.3% dividend yield, which, like Walgreens, does not use up a large portion of Franklin Resources' earnings. For example, analysts forecast earnings this fiscal year (ending September) of $2.39 per share, which is almost twice the $1.20 per-share annual dividend.
This creates a payout ratio of 50.2%. Put another way, this company could lose 49% of its earnings and still have enough to pay its dividend. That makes the 5.3% yield very safe.
It also doesn't hurt that Franklin Resources is one of the best dividend stocks for growth, which makes it an attractive long-term choice for retirees. BEN has had 42 years of consistently raising its dividend. So, not only does its dividend yield more than many bonds and cash accounts, but investors can count on the payments to rise each year.
One reason this is possible is that Franklin Resources is known as a value investing company. Its managers usually take a long-term value approach to investing in stocks and bonds. This also aligns with the typical outlook that its shareholders, many of whom are retirees, use when they invest.
Old Republic International
- Market value: $7.7 billion
- Dividend yield: 3.6%
- Dividend payout ratio: 38.7%
- Years of dividend growth: 42
Old Republic International (ORI, $26.92) is a multi-line insurance company that operates in niche markets, such as automobile extended warranty, aviation and commercial automobile, as well as title insurance for real estate transactions. As a result, it generally has been very profitable and can afford to pay healthy dividends – both quarterly and special – to its shareholders.
Moreover, as with many of the other best retirement stocks featured here, the annual dividend of 98 cents per share, which yields 3.6% to investors, does not take up much of the company's earnings. For example, analysts' forecast for $2.53 in earnings per share (EPS) this fiscal year is more than twice the dividend payout. Another way to say this is that the dividend uses less than half of earnings, as the payout ratio is 38.7%.
The stock is also very cheap. ORI is currently trading at 10.7 times forward earnings, while its price-to-tangible book value per share metric is just 1.2. Moreover, the company last year made a decent return on tangible book value of about 10%.
This is why Old Republic is able to pay out such healthy dividends and also repurchase its own shares. In fiscal 2022, the company spent $281 million on buybacks, which equates to 3.8% of its current market value.
Plus, in addition to hiking its dividend the past 42 years in a row, ORI has paid $1.00 or more per share in special dividends over the last several years. That effectively doubles its yield to shareholders.
The bottom line is Old Republic is a profitable niche insurance company with the best of all worlds: a low valuation, high yield that is well covered, and buybacks and special dividends paid to its shareholders. That makes it one of the best retirement stocks to hold for the long term.
- Market value: $298.8 billion
- Dividend yield: 3.9%
- Dividend payout ratio: 43.0%
- Years of dividend growth: 36
Chevron (CVX, $157.27) is a massive oil and gas company, with over $244 billion in revenue last year. Moreover, it creates massive amounts of free cash flow (FCF). For example, in 2022, Chevron generated almost $38 billion in FCF. This made its free cash flow margin extremely profitable at 15.3% (i.e., $37.6 b/$244.3 b).
As a result of this influx of cash, Chevron hiked its dividend in January 2023 by 6% to $6.04 per annum, giving the stock a 3.9% dividend yield. But don't worry, this is still just 43% of the $14.03 in EPS forecast by analysts for this year. That means that Chevron can easily afford its dividend.
To top things off, the oil major announced a massive $75 billion share buyback program. CVX said in its Q4 earnings release that it is spending $15 billion annually on buybacks. That works out to 5% of its current $299 billion market capitalization. In other words, its outstanding shares could drop around 5% each year.
This means its dividend-per-share rate can keep growing. In fact, Chevron has had a 36-year streak of raising its dividend per share. So despite the changes in the oil and gas markets over the years, this blue chip stock has found a way to keep raising its dividends annually. This is why CVX remains one of the best retirement stocks to buy for the long term.
- Market value: $258.2 billion
- Dividend yield: 4.1%
- Dividend payout ratio: 53.6%
- Years of dividend growth: 51
AbbVie (ABBV, $146.31) is an extremely profitable pharmaceutical company with several blockbuster drugs including Humira, which treats rheumatoid arthritis and severe Crohn's disease.
At its current stock price, ABBV trades for just 12.1 times forward earnings. It also means that its $5.92 per share dividend gives ABBV stock a healthy yield of 4.1%. Moreover, the dividend does not take up much of the earnings, as its payout ratio is just 53.6%, based on analysts' consensus estimate for EPS of $11.05. Another way to say this is that earnings are just about double the dividends, with a coverage ratio of 1.86 times (i.e., $10.96/$5.92).
What's more, investors can take comfort in the huge amount of free cash flow the company generates. Last year alone, it produced $24.9 billion in cash flow from operations. After capex spending of $695 million, its FCF was $24.2 billion. That was more than enough to pay the $10.0 billion it spent on dividends. In other words, AbbVie can easily afford its high dividend payments.
On top of this, AbbVie is focused on buying back its shares. For example, the healthcare stock spent $1.5 billion on buybacks last year, which was 59% more than in the 2021. This helps reduce shares outstanding and means the company can raise its dividends per share rate each year.
In fact, AbbVie has raised its dividend consistently over the past nine years as a standalone company, but 51 if you include its time as part of Abbott Laboratories (ABT) , which it spun off from in 2013. And its likely investors will see another dividend hike again in the next six months. This is what makes ABBV stock one of the best retirement stocks to buy and hold.
- Market value: $25.9 billion
- Dividend yield: 4.0%
- Dividend payout ratio: 31.8%
- Years of dividend growth: 13
HP (HPQ, $26.16) is a global company focused on imaging and printing products, as well as related technologies, solutions and services. Last year, the company had $63 billion in revenue and generated $3.9 billion in free cash flow.
This is important as HP spent $1 billion of this FCF on dividends. As a result, the tech stock has an attractive 4.0% yield based on its annual dividend rate of $1.10 per share, a new amount that reflects the company's mid-October hike. But, as with the other best retirement stocks featured here, this dividend does not use up much of the company's earnings.
For example, analysts forecast HPQ's earnings per share for the fiscal year ending October 2024 will be $3.46 per share. That means its dividend payout ratio is just 31.8% of forecast earnings (i.e., $1.10/$3.46).
This benefits shareholders in several ways. First, it means that HP can sustain its generous and attractive dividend payment. And it also leaves plenty of room for the company to use its free cash flow for debt reduction, acquisitions and/or share buybacks.
For example, during its last fiscal year ending October 2022, HP spent $4.3 billion on share buybacks. That represents a huge 16.6% of its $25.9 billion market capitalization. This may not be sustainable in the long run, but it shows how focused HP is on creating shareholder value.
It also helps HP's ability to increase its dividends, as there will be significantly few shares outstanding. That is the denominator in the dividends per share calculation, so the same level of dividends paid out result in a higher dividend-per-share rate.
The proof is in the pudding. For example, HP has now had a 13 year streak of consecutively higher dividend payments to shareholders – one of which, by the way, is Warren Buffett. The Oracle of Omaha added HPQ to the Berkshire Hathaway equity portfolio in 2022. And it's why HP is one of the best retirement stocks to own for the long term.
- Market value: $147.7 billion
- Dividend yield: 3.1%
- Dividend payout ratio: 46.7%
- Years of dividend growth: 12
Amgen (AMGN, $276.12) is a very successful biopharmaceutical company that focuses on inflammation, oncology/hematology, bone health, cardiovascular disease, nephrology and neuroscience areas. Its products include those that focus on psoriasis and arthritis, as well as cancer treatment drugs and therapeutics.
As a result, Amgen is very profitable. For example, in 2024, analysts expect Amgen to earn $19.98 per share, putting the stock on a forward multiple of just 13.8 times.
In addition, it has become a mature company that pays out about 47% of its earnings to shareholders. This means that its $8.52 per share in annual dividend payments are less than half of its forecast earnings.
Moreover, its 3.1% dividend yield at today's price is very attractive, even with its low payout ratio. This shows that the company is attentive to being shareholder focused.
All of this is possible since Amgen's drugs are very successful and generate large amounts of free cash flow. Last year, it produced $8.8 billion in FCF compared to $8.4 billion in the prior year. This more than covered the cost of its dividends, which was $4.2 billion.
However, the Dow stock is spending even more than this on share buybacks. Last year, it spent $6.2 billion on share repurchases. This represents 4.2% of its current market valuation of $147.7 billion. This ensures that its share count will keep dropping, even if the company spends less than that going forward. It also helps boost the dividend-per-share payment each year, along with cash flow growth.
As a result, investors can expect Amgen's dividends will keep growing over the long term. In fact, the company has an 12-year streak of dividend hikes. This is what makes it one of the best retirement stocks to buy.
- Market value: $95.8 billion
- Dividend yield: 3.2%
- Dividend payout ratio: 53.9%
- Years of dividend growth: 46
Medtronic (MDT, $71.96) is a medical device and therapies company that originally invented the pacemaker – a product that is probably relatable to many folks who are looking for the best retirement stocks. And in addition to annual sales of roughly $32 billion, the company is extremely profitable, which allows it to pay generous dividends and do large share buybacks.
For example, analysts forecast that Medtronic will make $5.12 per share in earnings for the fiscal year ending April 2024. That makes its multiple very reasonable around 16.8.
In addition, its $2.76 dividend per share is about half of estimated earnings (actually 53.9%). This comes after a 1.5% hike to its annual dividend announced in May 2023, following its fiscal fourth-quarter earnings report.
This makes MDT stock attractive to retirement investors since it means that the dividend is very secure. Moreover, it leaves room for Medtronic to raise it over time, especially as earnings and free cash flow grow.
Right now, MDT stock has a 3.8% dividend yield – more than double the S&P 500. Moreover, in fiscal 2023, it bought back $2.5 billion of its shares. This works out to be about 2% of its current market cap.
While this is not much, every little bit helps toward allowing the company to keep raising its dividend. In fact, its most recent dividend hike marks the 46th straight year of raising its payout.
Plus, in its fiscal Q4 press release, the company said it "remains committed to returning a minimum of 50% of its free cash flow to shareholders, primarily through dividends, and to a lesser extent, share repurchases."
All of these features – its low earnings multiple, high dividend yield, low dividend payout ratio, and consistent buybacks and dividend hikes – make MDT one of the best retirement stocks to buy and hold.
- Market value: $433.9 billion
- Dividend yield: 3.4%
- Dividend payout ratio: 38.78%
- Years of dividend growth: 40
Exxon Mobil (XOM, $108.39) is another of the blue chip energy stocks featured here – and for good reason. XOM is an extremely profitable and consistent dividend paying oil and gas company. Last year, it produced $400 billion in revenue, and from that it generated $62 billion in free cash flow. That is an astoundingly high 15.5% FCF margin for such a large company.
Moreover, Exxon is committed to producing shareholder value, having hiked its dividend every year for the past 40 years – a period that includes the COVID-19 pandemic.
And it can easily afford to do this. For example, the annual $3.64 per share dividend is just 38.7% of analysts' projections of $9.41 EPS this year.
And even at this level, the stock has an attractive 3.4% dividend yield. This implies XOM has plenty of room to keep raising its dividend – pushing its yield even higher.
Moreover, in late December, Exxon increased and extended its share-repurchase program. It will buy back up to $35 billion of cumulative share repurchases in 2023-2024, which represents about 8% of its current market capitalization.
It also implies that XOM will buy back $17.5 billion for both years, compared to $14.9 billion in 2022. The net result is that its buybacks will rise by more than 17% over the next two years.
In other words, Exxon is using its free cash flow to dramatically reduce its outstanding share count. This means for the same dividend cost, its dividend per share will rise significantly.
And with its 40-year track record of hiking dividends, it is very likely these payouts will keep rising. This brings a great deal of comfort to income investors who count on dividend payments, such as retirees. It makes XOM stock one of the best retirement stocks to hold for the long term.
Mark R. Hake, CFA, is a Chartered Financial Analyst and entrepreneur. He has been writing on stocks for over six years and has also owned his own investment management and research firms focused on U.S. and international value stocks, for over 10 years. In addition, he worked on the buy side for investment firms, hedge funds, and investment divisions of insurance companies for the past 36 years. Lately, he is also working as Chief Strategy Officer for a tech start-up company, Foldstar Inc, based in Princeton, New Jersey.
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