5 A-rated High-Dividend Stocks for Retirement
There is something truly special about seeing a fat dividend check hit your account every quarter without having to lift a finger. Many individual investors love dividend stocks, but it tends to be retired investors and those approaching retirement who appreciate dividend stocks the most.
Dividend stocks can make outstanding investments in retirement stock portfolios, but they can also lead to trouble.
The problems with dividend stocks are most often encountered when investors focus too much on yield. A high dividend yield offers the allure of a super-sized dividend check, but a high yield can also be a sign of distress, or a looming dividend cut.
Don’t Chase High Dividend Yields
You can take it on authority that almost every stock that ends up cutting its dividend is one of the highest-yielding stocks in its industry or sector just before the dividend gets cut. The market tends to sniff out dividend cuts ahead of an actual announcement. An investment strategy that picks dividend stocks solely on the basis of yield is sure trouble.
Even if you try to diversify across a broad portfolio of the highest-yielding dividend stocks, you are likely to be disappointed.
The chart below compares the performance of two dividend strategies. The first, represented by the orange line, tracks a portfolio of the highest-yielding stocks in the market (top 10%), not counting non-dividend payers. This portfolio is equally weighted and rebalanced annually. The second portfolio, represented by the blue line, is what you can think of as the average dividend yield portfolio. This portfolio invests in the middle 10% of stocks based on yield and it is also equally weighted and rebalanced annually.
Over the last 44 years, a portfolio of stocks with average yields has outperformed a portfolio of the highest-yielding stocks by a considerable margin.
A Better Approach to Dividend Investing
For investors who crave high dividend yields, a savvier dividend investing strategy is to make yield the last criterion instead of the first. Start by finding the best stocks for your retirement portfolio and only then, select stocks with the highest dividend yields.
What are the Best Dividend Stocks for Your Retirement Portfolio?
Our Retirement Stock RatingsSM system rates stocks appropriate for investors saving for retirement and those already in retirement, on a wide range of criteria. We look at value, dividends, buybacks, sentiment, profitability, and timeliness among other factors. We then give each stock a letter grade. As are the best Fs are the worst.
Below are five A-rated stocks from our retirement stock universe with attractive dividend yields. Like with any stock rating system, our Retirement Stock RatingsSM should serve as a first step in the investment decision-making process. It’s crucial to conduct your own in-depth research or consult with a financial advisor before making any investment decisions.
Kimberly-Clark (KMB) | Dividend Yield: 3.9%
Kimberly-Clark is a global leader in personal care and hygiene products. The company’s more well-known brands include Huggies, Kleenex, and Scott. With a dividend yield of almost 3.9%, a 52-year record of making annual dividend increases, and a business that is less susceptible to economic and business fluctuations, Kimberly-Clark appeals to the dividend-hungry investor saving for retirement.
Evergy (EVRG)| Dividend Yield: 5.1%
Evergy serves as a primary electric utility, providing power to 1.7 million residential and commercial customers across Kansas and Missouri. Evergy’s 5.1% dividend yield, and mid-single-digit dividend growth rate give it appeal for dividend-focused investors.
Paccar (PCAR) | Dividend Yield: 3.6%
Paccar is a renowned manufacturer of heavy-duty trucks under the Kenworth, Peterbilt, and DAF brands, with a significant presence in the aftermarket parts sector and financial services. Its robust manufacturing capabilities and global reach make it a key player in the transportation industry. It should be noted that Paccar’s high yield among A-rated retirement stocks comes as a result of a special dividend. The special dividend is paid regularly, but fluctuates much more than the regular dividend.
Dillard’s (DDS) | Dividend Yield: 3.5%
Founded in 1938 in Little Rock, Arkansas, Dillard’s is a retail department store chain with 274 stores across 30 states. In an era when Amazon has taken down many of America’s legacy department stores, Dillard’s has thrived. Over the last four years Dillard’s shares have returned over 100% annually. A $10,000 investment in April 2020 in Dillard’s would be worth $197,000 today. Mighty Amazon’s stock looks like a staid utility compared to Dillard’s.
Like Paccar, Dillard’s makes the list of high-yielding A-rated retirement stocks because it pays special dividends. Dillard’s also has an aggressive share buyback program. Shares outstanding have declined by 63% over the last decade.
Cisco (CSCO) |Dividend Yield: 3.3%
Cisco is a dominant provider of equipment and services needed to power the internet. The company is a market share leader in switching, routing, and wireless access technologies with strong positions in security as well. Cisco has a strong balance sheet and one of the best yields among large technology companies.