Kings & Aristocrats: 5 Retirement Favorites

With the average dividend of the S&P 500 at 1.6%, investors in retirement may feel that there are few places to find safe income in the stock market, observes asserts Ben Reynolds; here, the editor of Sure Dividend and contributor to reviews 5 favorite stocks for retirees.

Retirees who live off investment income such as dividends might be tempted to reach for extreme high yields from riskier investments. We believe that there are quality dividend stocks such as the Dividend Aristocrats, that offer safe and reliable income in retirement.

1) V.F. Corporation (VFC)

V.F. Corporation has had a rough year, as the stock price is down ~45% year-to-date. But the company has a long history of riding out economic downturns, while raising its dividend for over 40 years in a row. With a 4.9% dividend yield, VF Corp is an attractive dividend stock for retirees.

V.F. Corporation is one of the world’s largest apparel, footwear and accessories companies. Its brands include The North Face, Vans, Timberland and Dickies. The company, which has been in existence since 1899, generates roughly $11 billion in annual sales.

On July 28th, V.F. Corp reported financial results for the first quarter of fiscal 2023. Revenue of $2.26 billion rose 3.2% beat estimates by $20 million. Adjusted earnings-per-share of $0.09 missed estimates by $0.05 per share. The North Face brand led the way for the quarter with 37% constant-currency revenue growth. Gross margin of 53.9% declined 260 basis points for the quarter, as inflation took a bit bite out of margins.


The company lowered its full-year forecast, now expecting adjusted earnings-per-share in a range of $3.05 to $3.15. This guidance implies 4% to 7% earnings growth for the full year, so it is clear the company should still grow EPS this year.

This has been a difficult year for apparel manufacturers, as inflation has eroded profitability. However, V.F. Corp is able to continue growing revenue while remaining profitable, thanks to its industry-leading brands and global scale. These competitive advantages have allowed the company to raise its dividend for 49 consecutive years.

At the midpoint of the company’s guidance, adjusted earnings-per-share are expected to come in at $3.10 for the upcoming fiscal year. This means VFC stock is currently trading for a forward P/E of just 13.0. Over the past decade, shares of V.F. Corp have traded for an average price-to-earnings ratio of 21.5.

We view the stock as considerably undervalued, with a fair value P/E of 19. In addition, the stock has a 4.9% dividend yield, while we expect 7% annual EPS growth over the next five years. Total returns could reach 18.2% per year over the next five years for VF stock.

The dividend also appears highly secure. Using the company’s fiscal year guidance, with expected EPS of $3.10, the forward dividend payout ratio is approximately 64.5%. This is a comfortable payout ratio that provides sufficient financial cushion to pay the dividend, and provide annual dividend increases, even if earnings growth temporarily declines.

It is also noteworthy that VFC stock is currently offering a 10-year high dividend yield of 4.9%. As a result, the stock offers an attractive entry point for income investors such as retirees looking for a combination of a high dividend yield, and annual dividend increases.

2) 3M Company (MMM)

3M Company is a Dividend King that has increased its dividend for over 60 years in a row. The stock also has a dividend yield of 5.1%, making it an attractive dividend stock for retirees. To increase dividends for so many years in a row, a company inevitably must possess competitive advantages, a leadership position in its particular industry, and long-term growth.

3M is a global industrial manufacturer that sells more than 60,000 products that are used every day in homes, hospitals, office buildings and schools around the world. 3M operates four segments. The Safety & Industrial division produces tapes, abrasives, adhesives and supply chain management software as well as manufactures personal protective gear and security products.

The Healthcare segment supplies medical and surgical products as well as drug delivery systems. The Transportation & Electronics division produces fibers and circuits with a goal of using renewable energy sources while reducing costs. The Consumer division sells office supplies, home improvement products, protective materials and stationary supplies.

3M has not been immune to the global economic slowdown. On July 26th, 2022, 3M reported second quarter earnings results for the period ending June 30th, 2022. Revenue decreased 2.8% to $8.7 billion but was in-line with expectations. Adjusted earnings-per-share of $2.48 compared to $2.59 in the prior year but was $0.04 above estimates.

Safety & Industrial had 0.7% organic growth as this segment continues to see gains in industrial adhesives and tapes, abrasives, and masking systems.

Transportation & Electronics revenue grew 0.5% as advanced materials, commercial solutions, and automotive OEM were higher for the quarter.

Transportation & Safety and the Consumer segment posted revenue declines, but the health care segment generated 4.4% growth for the quarter.

Inflation has taken its toll, as 3M lowered guidance along with quarterly results. The company now expects adjusted earnings-per-share of $10.30 to $10.80 for the year, down from $10.75 to $11.25 previously. Still, 3M’s dividend is secure.

3M has increased its dividend for 64 consecutive years, giving it one of the longest streaks of dividend hikes in the entire stock market. It has maintained such an impressive track record through its durable competitive advantages, primarily its innovation.

The company targets R&D spending equivalent to 6% of sales (~$2 billion annually) in order to create new products to meet consumer demand. This spending has proven to be very beneficial to the company as 30% of sales during the last fiscal year were from products that didn’t exist five years ago.

We believe 3M’s innovation will generate 5% annual earnings-per-share growth. In addition, the stock is undervalued, with a P/E of 11.2 against our fair value estimate of 19, which is the 10-year average valuation multiple for 3M stock. Lastly, shares currently yield 5.1%, leading to total expected returns of 18.7% per year for 3M.

3) Walgreens Boots Alliance (WBA)

When a person is no longer receiving a paycheck from employment, there is often a continued need for investment income. This is why we recommend investors in retirement consider dividend growth stocks such as the Dividend Aristocrats, as they have increased their dividend for at least 25 consecutive years. Walgreens Boots Alliance is a Dividend Aristocrat with a safe dividend, and a high 5.4% dividend yield.

Walgreens Boots Alliance is the largest retail pharmacy in both the United States and Europe. Through its flagship Walgreens business and other business ventures, the company has more than 13,000 stores in the U.S., Europe and Latin America.

This has been a challenging year for Walgreens stock, which has declined 25% year-to-date. Walgreens was a major beneficiary of the coronavirus pandemic, as demand for vaccines and healthcare products soared. The flip side of this is that as the pandemic has faded, the company’s financial results have suffered from unfavorable comparisons.

On June 30th, 2022, Walgreens reported Q3 results for the period ending May 31st, 2022. Sales from continuing operations declined by 4% and adjusted earnings-per-share declined by 30% year-over-year. The declines were mostly due to peak COVID-19 vaccinations in the prior year’s quarter.

Still, Walgreens’ earnings-per-share exceeded analysts’ consensus by $0.03. And, the company has beaten analysts’ estimates for 8 consecutive quarters. For the upcoming year, Walgreens reiterated its guidance for low-single digit growth of its annual earnings-per-share. This means the company should have little trouble continuing to increase the dividend.

Walgreens’ competitive advantage lies in its vast scale and network in an important and growing industry. The payout ratio remains reasonable, projected at 36% for the current fiscal year. This means Walgreens has a very secure dividend payout, even if earnings-per-share do not grow in the near-term. Walgreens has increased its dividend each year for over 40 consecutive years.

And the decline in the share price has elevated Walgreens’ dividend yield to 5.4%, nearly a decade-high yield for this Dividend Aristocrat. We expect Walgreens to grow its annual earnings-per-share by 3% over the next five years, which should allow for modest hikes to the dividend each year. WBA stock has a price-to-earnings ratio of 6.6, significantly below our fair value estimate of 10. This leads to total expected returns of 15.9% at the current share price.

Over the long-term, we view Walgreens as a beneficiary of a major trend in the U.S., which is the aging population. The U.S. has a large population of 65+, which will likely result in healthcare spending growing at a rate above GDP growth. As there will always be a need for healthcare products and services, even during recessions, we view Walgreens as a suitable dividend stock for retirees.

4) Leggett & Platt (LEG)

Leggett & Platt (LEG) is a Dividend King with a long history of steady growth, even though economic downturns. With a yield above 4%, LEG is a quality Dividend King for retirees. Leggett & Platt is a diversified manufacturing company. It designs and manufactures a wide range of products, including bedding components, bedding industry machinery, steel wire, adjustable beds, carpet cushioning, and vehicle seat support systems. The company has a large and diverse product portfolio.

On August 1st, the company reported fiscal second-quarter results. Quarterly revenue of $1.33 billion was in-line with analyst estimates, representing 4.7% year-over-year growth. Organic sales rose 5% for the quarter, while volume was down 6% due to weak demand from residential customers.

Selling price increases added 13% to quarterly sales, while currency was a drag by 2%. In all, LEG’s earnings-per-share declined 14% year-over-year, as the impact of rising inflation took its toll on the bottom line.

The difficult environment is expected to last through the year. Along with quarterly results, LEG lowered its full-year outlook. The company now expects full-year sales growth of 2% to 6%, while earnings-per-share is expected in a range of $2.65 to $2.80 for 2022.

Leggett & Platt has maintained a long history of steady growth, thanks in large part to the company’s durable competitive advantages. The company holds an expansive intellectual property portfolio, consisting of 1,500 issued patents and approximately 1,000 registered trademarks.

These competitive advantages separate Leggett & Platt’s various brands from the competition and allow the company to remain profitable and pay dividends, even during recessions. For example, in the most recent quarter LEG increased its dividend by 5%, and the company utilized $35 million to repurchase 1 million shares of its own stock. Leggett & Platt is a shareholder-friendly company that returns cash to investors, even during difficult periods. The dividend also appears secure, as Leggett & Platt has a fiscal 2022 dividend payout ratio of 65%.

We view the stock as slightly undervalued, with a high return potential. At the midpoint of guidance, LEG stock trades for a forward P/E of 13.4, which is exactly in-line with our fair value P/E. Still, we expect 5% annual earnings-per-share growth for the company, while shares currently yield 4.8%. Overall, total returns are expected to reach 10.5% per year over the next five years.

5) Franklin Resources (BEN)

Franklin Resources (BEN) is a time-tested Dividend Aristocrat that has increased its dividend for over 40 consecutive years. The stock has declined ~23% year-to-date, which we view as a buying opportunity. With a current yield of 4.5%, Franklin Resources is an appealing pick for retirees.

Franklin Resources is a Dividend Aristocrat from the financial sector. Franklin Resources is a global asset manager offering investment management and related services including sales, distribution, and shareholder servicing. The company offers investment management and related services to its customers, including sales, distribution, and shareholder servicing.

On July 28th, Franklin Resources reported third-quarter financial results. Revenue of $2.03 billion declined 6.5% year-over-year, while adjusted earnings-per-share of $0.82 declined 15% for the quarter. Average assets under management declined 6% year-over-year, due to declines in the capital markets.

While 2022 is proving to be a challenging year, we expect the company to bounce back and return to growth. Our forecast is for 3% average EPS growth per year over the next five years. The biggest growth segment in the asset management industry is ETFs, which have much lower expense ratios than actively managed funds. Franklin’s actively managed funds have performed well, which serves as an advantage versus other active asset managers. Continued growth will allow Franklin Resources to keep increasing its dividend each year.

Franklin Resources has a secure dividend, with a 2022 expected dividend payout ratio of just 31%. The dividend payout ratio has never been especially high, which has allowed the company to retire a meaningful number of shares and pay the occasional special dividend.

In the most recent quarter, Franklin Resources repurchased 2.0 million shares of its common stock for a total cost of $51.0 million. It has also raised its dividend for 42 consecutive years, including a 4% hike in December 2021. Shares currently yield 4.5%.

The company is expected to generate earnings-per-share of $3.72 for 2022. This means the stock is valued at a P/E of just 6.9. Our fair value estimate is a P/E of 9. This means expansion of the P/E multiple from 6.9 to 9 could increase annual returns by 4.3% per year over the next five years. The stock is currently undervalued and also has a high dividend yield of 4.5%. Meanwhile, we expect EPS growth of 3% per year, leading to total expected returns of 11.8% per year over the next five years.

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