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All Contents © 2019The Kiplinger Washington Editors
By Brian Bollinger, Simply Safe Dividends
| November 20, 2017
With interest rates remaining stubbornly low, many investors have turned to higher-yielding dividend stocks to supplement their retirement income.
While some high yields are safe, others can indicate a broken business model and a dividend payment at risk of being slashed in the future.
Dividend Safety Scores can help income investors avoid companies that are most at risk of cutting their dividends in the future, helping retirees preserve capital and generate secure income.
Dividend Safety Scores assess payout risk by analyzing a company's most important financial metrics. Our scores have flagged dividend cuts from major companies, such as Kinder Morgan (KMI) and ConocoPhillips (COP), well before the announcement was made to help investors sidestep risk.
We used our Dividend Safety Scores to identify 10 of the best high dividend stocks for retirement. These companies have an average yield above 4%, have grown their dividends for at least five years, and appear well-positioned to continue paying growing dividends in the years ahead.
Prices and data are from the original InvestorPlace story published on Nov. 13. Click on ticker-symbol links in each slide for current prices and more.
This slide show is from InvestorPlace, not the Kiplinger editorial staff.
Dividend yield: 4.5%
Consecutive years of higher dividends: 28
National Retail Properties is a real estate investment trust that has been in business since 1984. The company has more than 2,600 retail-focused properties across most of the U.S. that are leased to over 400 tenants across nearly 40 lines of trade.
While many retail-focused REITs are facing growth headwinds from the rise of e-commerce, National Retail Properties maintains a well-diversified business model that helps insulate it from this risk. The company's largest sector exposure is convenience stores (approximately 17% of annual rent), followed by restaurants, auto service, family entertainment centers, and health and fitness. It's hard to imagine e-commerce denting demand in any of these industries.
In fact, the company's occupancy rate remained near 99% in the third quarter of 2017, and adjusted funds from operations (AFFO) grew nearly 7% year-over-year. When combined with its conservative management team and healthy balance sheet (NNN enjoys an investment grade credit rating), it's no surprise that National Retail Properties has an exceptional dividend growth track record.
National Retail Properties is one of only 88 out of more than 10,000 publicly traded companies that have raised annual dividends for 28 or more consecutive years. Its dividend has only increased by about 2% per year over the last two decades, but it should be able to continue growing its payout at a low-single-digit rate going forward.
Dividend yield: 3.4%
Consecutive years of higher dividends: 45
Kimberly Clark owns some of the most popular household brands in the country, including Huggies, Kleenex, Scott and Pull-Ups. In business since 1928, the company has grown into one of the biggest manufacturers of tissue and hygiene products, including diapers, baby wipes, tissues, toilet paper and paper towels.
Kimberly Clark's business is very global, with about half of its revenue coming from outside North America. With substantial economies of scale, a large marketing budget, continued product innovation, and a portfolio of well-known and recession-resistant brands, the company enjoys significant competitive advantages.
As a result, KMB stock has paid higher dividends for 45 consecutive years and is a member of the exclusive S&P dividend aristocrats group. With a reasonable payout ratio near 60%, an investment-grade credit rating and numerous long-term growth opportunities in emerging markets, Kimberly Clark should have no trouble continuing to pay safe, moderately growing dividends.
Dividend yield: 3.7%
Consecutive years of higher dividends: 35
Exxon Mobil is one of the oldest energy companies in America with roots dating back to 1870. Today Exxon is the world's largest publicly traded integrated oil company with operations spanning across six continents.
As an integrated energy company, XOM operates three unique but connected segments—upstream oil & gas production, downstream refining, and specialty chemicals. This helps the company achieve somewhat steadier cash flow throughout the energy sector's unpredictable ups and downs.
When combined with Exxon's massive scale, which lowers its production costs (an important advantage in commodity markets), long track record of disciplined capital allocation, and cost-advantaged resource base, the business has been a dividend machine over the years.
In fact, Exxon has paid uninterrupted dividends since 1882, while raising its payout for 35 consecutive years. The company's dividend grew about 9% per year over the last decade and remains on solid ground even despite weakness in oil prices.
Dividend yield: 3.8%
Consecutive years of higher dividends: 19
General Mills manufacturers a wide range of packaged meals, cereals, snacks, baking products, yogurts and more. Some of its well-known brands include Cheerios, Yoplait, Pillsbury and Annie's. Close to 70% of the company's sales are made in the U.S.
The company's past success was largely driven by its longevity. General Mills and its predecessors have been in business for over a century. As a result, the company has built up impressive manufacturing scale, extensive global distribution channels, and popular brands that benefit from many decades of heavy marketing spending.
This has helped General Mills pay uninterrupted dividends for over 115 years while raising its payout each year for nearly two straight decades. With consistent free cash flow generation, a healthy payout ratio near 65%, and recession-resistant products, the company's dividend remains on solid ground despite its recent growth struggles.
General Mills named Jeff Harmening, a long-time company insider, as its new CEO over the summer. Harmening's top priority is to improve sales growth by investing in product innovation and pricing initiatives. While the packaged food industry has been challenged by shifting consumer tastes for healthier, organic, and fresh offerings, General Mills seems to have the resources to adapt like it has in the past. If successful, the safety of its payout will only improve.
Consecutive years of higher dividends: 7
Public Storage owns more than 2,500 storage rental properties in America, serving more than one million customers and generating dependable cash flows thanks to its month-to-month leases. Unlike other REITs with longer-term leases, the short-term nature of Public Storage's leases makes it easier for the company to raise prices to keep profits growing in excess of the rate of inflation.
Switching storage units is also a pain for consumers, making them more captive customers. With PSA's facilities primarily located in major metropolitan areas with strong population densities and higher income, it offers consumers convenient storage access.
While Public Storage has only raised its dividend for seven straight years, it has paid uninterrupted dividends for more than 25 years. The company has boosted its payout by 13.8% annually over the last decade and has potential to continue raising its dividend by close to 10% per year thanks to its relatively low market share and solid balance sheet, which provides access to growth capital for future acquisitions.
Dividend yield: 5.1%
Consecutive years of higher dividends: 14
Welltower has paid uninterrupted dividends since the early 1970s and is one of the biggest healthcare REITs in the country. The company has a diversified portfolio of senior assisted living communities, hospitals, skilled nursing facilities, and medical office buildings. In total, Welltower owns nearly 1,400 properties across North America and the U.K.
Management has gradually reduced Welltower's dependence on Medicare and Medicaid reimbursements over the last seven years. Today, roughly 93% of the company's rent revenue comes from private payer insurance sources, making Welltower's stream of cash flow all the more resilient to healthcare reform.
The company has increased its dividend most years throughout its history, recording approximately 4% annual dividend growth over the last five years and increases each year since 2004. As the company's cash flow continues growing at a low-to-mid-single-digit rate, dividend growth will likely follow.
Dominion Energy has been in business for more than 100 years and is one of the largest producers and transporters of energy in the country. More specifically, the diversified utility company has a portfolio of 25,700 megawatts of electric generation, 15,000 miles of natural gas transmission, gathering, storage, and distribution pipeline, and 6,600 miles of electric transmission and distribution lines. It serves more than 6 million utility and retail energy customers.
Dominion has shifted its portfolio in recent years to lessen its exposure to commodity prices and focus more on business with faster growth potential, stronger competitive advantages, and less risk. Approximately 90% of Dominion's sales are from regulated operations today, which provides the company with excellent cash flow visibility.
Dominion also acts as the general partner and sponsor of its midstream master limited partnership, Dominion Midstream Partners (DM). This provides a low-cost source of funding for the company's expansion plans, which are expected to generate mid to high-single-digit annual earnings growth in the years ahead.
Turning to the dividend, Dominion Energy has paid consecutive dividends for close to 90 years while raising its payout for 14 consecutive years. Management targets a regulated payout ratio at up to 75%, which is conservative for a utility. The company also has several billions of dollars of liquidity available should the need arise.
As a result, Dominion is confident it can achieve at least 8% annual dividend growth starting in 2018 as its large projects begin generating significant cash flow. Dominion is a unique retirement stock that can provide income, growth, and relatively low volatility.
Dividend yield: 4.2%
Consecutive years of higher dividends: 10
Philip Morris International sells cigarettes to more than 150 million consumers located in more than 180 countries, making it one of the biggest tobacco companies in the world. However, the company's reach does not include the U.S. Philip Morris was formed in 2008 when Altria Group spun off its international operations.
Marlboro is the company's and the world's number one brand, but Philip Morris also owns five of the world's other top 15 international brands, such as Virginia Slims and Red & White. This has helped Philip Morris capture significant global market share while enjoying average annual pricing gains in the mid-single digits.
While the company's international diversification helps insulate it from new anti-smoking laws in any single country, Philip Morris is busy investing in the next big thing as cigarette sales volumes continue to drop. More specifically, the company is making meaningful progress on reduced-risk products, such as IQOS (which doesn't burn tobacco).
The company has increased its dividend every year since spinning off from Altria and is likely to continue raising its payout at only a low-single-digit rate given its relatively high payout ratio, currency headwinds and declining sales volumes, which are currently being offset by higher prices and lower costs.
Dividend yield: 4%
Consecutive years of higher dividends: 47
Altria has been in business since 1919 and is just three years away from recording its 50th consecutive annual dividend increase, which will qualify the company as part of the exclusive dividend kings group. Altria is the largest tobacco company in America, primarily generating revenue from its Marlboro and Middleton cigarette brands.
Altria had been known for its combination of high income and growth over the years, and the recession-resistant nature of the tobacco industry provided investors with even greater comfort. That's why many shareholders were shocked by an announcement the U.S. FDA made in July to regulate nicotine levels in cigarettes so that they are no longer addictive.
Altria's stock dropped as much as 20% on the news as investors feared such regulation could accelerate the decline in smoking and hurt Altria's high profitability as its product mix is forced to change into less lucrative offerings.
Investors can learn more about this news and how it could affect Altria's dividend safety here. At the end of the day, many details are missing from the FDA's proposal, and there are a number of reasons to believe no material impact will come from this announcement.
A spokesman for Imperial Brands, a tobacco manufacturer in the U.K., perhaps put it best when he said, "Until the eventual development of specific proposals, it's too early to understand the practical implications."
Given management's 80% payout ratio target and the company's ability to continue growing earnings at a mid-to-upper-single-digit clip, Altria's dividend appears to remain on solid ground. In fact, management boosted the payout by 8% just earlier this summer.
Dividend yield: 4.3%
Consecutive years of higher dividends: 16
PPL is a rather boring regulated electric utility company that has rewarded shareholders with higher dividends for 16 consecutive years. The company's electricity distribution business spans Pennsylvania, Kentucky, Virginia and Tennessee, as well as the U.K. It also owns a natural gas transmission and power generation business in Kentucky.
Altogether, PPL serves 10.5 million utility customers and has been in business for more than 100 years. Since most of PPL's cash flow is from regulated operations, it enjoys secure and predictable profits most years. While PPL's dividend has compounded rather slowly at 3.3% per year over the last decade, its outlook is improving.
The company's earnings per share are expected to grow 5% to 6% annually through 2020, so management expects dividend growth to average closer to 4% going forward. Sure enough, the company hiked its payout by 4% in February 2017. PPL is a reasonable candidate for investors looking to live off dividends in retirement.
This article is from Brian Bollinger of InvestorPlace. As of this writing, Bollinger is long NNN, KMB, XOM, GIS, D, PM, MO and PPL stocks.
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