The 10 Best Dividend Stocks For Retirement

The company’s primary growth driver is incremental GDP growth in the areas it serves. This means Consolidated Edison will likely be able to increase its dividends at about the pace of inflation – or a bit faster.

In total, I expect Consolidated Edison to grow earnings-per-share at 3.5% a year. This growth combined with the company’s dividend yield gives investors an expected total return of 7% a year.

7% a year expected total returns is not eye-catching. When one considers the ultra-low risk of Consolidated Edison’s business model, it’s risk adjusted total returns look much more appealing. Consolidated Edison stock is similar to a bond – that can pay rising income year after year.

Consolidated Edison is currently trading for a price-to-earnings ratio of 17.7. The company is likely trading around fair value at current prices given today’s low interest rate environment.

Retirement Dividend Stock: SCANA Corporation

SCANA (SCG) is an electricity and natural gas utility with operations in North & South Carolina and Georgia.

SCG Operations

Source: SCANA Morgan Stanley Utilities Presentation, slide 1

SCANA is focusing heavily in growing its nuclear power generating capabilities. The company currently generates 20% of its power from nuclear sources. By 2021, it expects to generate 55% of its power from nuclear.

The company has been able to pass increasing rate increases to help pay for the cost of expanding its nuclear power operations.

SCANA has higher expected earnings-per-share growth than Consolidated Edison because the company operates in states that are seeing faster population growth. SCANA is expecting earnings-per-share growth of 4% to 6% a year over the next several years.

Dividends should grow at the same 4% to 6% a year pace. The company’s stock currently has a 3.5% dividend yield – well above the S&P 500’s 2.2% dividend yield.

Investors should expect total returns of 7.5% to 9.5% a year from SCANA from earnings-per-share growth and dividends.

SCANA has increased its dividend payments in 61 of the last 65 years. The company’s operations are especially stable due to natural geographic competitive advantage enjoyed by utilities. Utilities are highly regulated – and SCANA is no exception. The company has some room for additional growth as it is earnings a bit less than government mandated maximums.

SCANA is currently trading for a price-to-earnings ratio of 17.7. The company is likely trading around fair value given its solid expected total returns and low risk operations.

Retirement Dividend Stock: Southern Company

Southern Company (SO) is an electricity utility that supplies power to over 4.5 million customers in:

  • Georgia
  • Alabama
  • Mississippi
  • Florida

Southern Company is extremely stable. The company has paid dividends every quarter… Since 1948.

The company has not reduced its dividend payments since at least 1982 (and probably much longer). Southern Company’s recent dividend growth is shown in the image below.

Southern Company Dividend Increases

Source: Southern Company Investor Relations

Southern Company pays large dividends. The company’s dividend yield currently sits at 4.5%. Retired investors should take note of the company’s combination of a high yield and stability.

Like the other utilities discussed in this article, Southern Company’s competitive advantage comes from its natural geographic advantage and its presence in a highly regulated industry.

Southern Company is similar to Consolidated Edison in that it is not a fast growing business. The company has managed to compound earnings-per-share at 3.0% a year over the last decade and dividends-per-share at 3.9% a year over the same period.

The company’s management is expecting earnings-per-share growth of 4% to 5% a year. I believe this is a touch optimistic given the company’s historical growth. Earnings-per-share growth of 3% to 4% a year is more likely.

This growth combined with the company’s 4.5% dividend yield gives investors expected total returns of 7.5% to 8.5% a year – not bad for low risk, highly regulated utility business.

Southern Company is currently trading for a price-to-earnings ratio of 16.8. Like the other utilities in this article, Southern Company is likely trading around fair value given its stability, high yield, and growth prospects.

Retirement Dividend Stock: Emerson Electric

Emerson Electric (EMR) has an enviable dividend record. The company is one of only 17 Dividend Kings – dividend stocks with 50+ consecutive years of rising dividends.

Emerson Electric is a large diversified manufacturer with a $33 billion market cap and a 3.7% dividend yield.

The company’s stock price peaked at around $65 near the end of 2014. Today, Emerson Electric stock can be purchased for ~$51. The last 1.5 years have not been good for the manufacturing industry. Emerson Electric is no exception:

EMR Negative Growth

Source: Emerson 2016 Investor Conference Presentation

Despite the downturn, Emerson Electric’s payout ratio is still safe at just 50% of earnings.

Temporary negative growth has caused Emerson stock to become a bargain. The company’s shares are currently trading for a price-to-earnings ratio of 13.8.

Emerson is not a slow growth company. It has compounded both earnings-per-share and dividends-per-share at over 8% a year over the last decade. The company is suffering temporarily (as are many other manufacturers) from the decline in oil and gas prices, the growth slowdown in emerging markets, and the strong United States dollar.

Emerson Electric’s competitive advantage comes from its large size and global reach. The company has around 230 manufacturing facilities spread around the world.

Emerson Electric is splitting up its business to focus on its best individual business units. The company will divest around 1/3 of its business to focus on its more lucrative automation and commercial & residential solutions businesses.

These divestitures will very likely create value for shareholders over the long run as it better focuses the company on its core competencies.

Emerson Electric combines a high yield, with a very long streak of rising dividends, a low price-to-earnings ratio, and a value unlocking catalyst in upcoming divestitures.

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Disclosure: None.

The Dividend Aristocrats Index is an excellent place to start looking for such high ...

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