Low interest rates have significantly altered the dynamics of bond investing, a tool often used for retirement planning. A robust retirement portfolio now rests on the pillars of consistent and growing dividend payments.
As a part of any effective wealth-building strategy, it's essential that your dividend income beats inflation. S&P 500's dividends have seen an 5.8% average annual increase since 1990, handily beating the average rate of inflation.
However, this figure could be substantially slashed in the event that companies reduce their dividend payments or the yield undergoes a sudden slump.
We take a look at leading high-dividend stocks that are capable of rising above the risk-factors and delivering stability and growth to your retirement portfolio.
The stocks of health care and pharmaceutical companies are volatile right now, with Valeant Pharmaceuticals, Gilead Sciences, Pfizer, and Vertex Pharmaceuticals all under scrutiny following drug pricing becoming a political issue.
However, if there is one player in the healthcare space that ticks all the boxes for steady and reliable income, it's Johnson & Johnson. The company's future looks as promising as its past.
It is a dividend aristocrat, increasing dividends over the past 25 years; Johnson & Johnson has had an uninterrupted history of 53 years of rising dividends.
The company is a household name because of its consumer business products, like Tylenol and Band-Aid, a segment that contributed 19% to revenues for the most recent quarter. However, comprising a bigger share of the pie is medical devices at 36%, followed by pharmaceuticals.
Johnson & Johnson has tasted success in this space making future dividend pay-outs look almost certain, and even fat. While the company is riding high on the endorsement of its diabetes treatment drug Invokana, blood-thinner drug Xarelto, and cancer therapy drug Imbruvica, the health care major will seek approval for 10 new products by 2019, and each of them could promise a profitable future.
Coca Cola's most recent earnings report was a disappointment and it and provided a weak guidance for the fourth quarter on the back of a depreciating dollar. However, the carbonated beverages giant showed signs of being able to ride out the storm.
For starters, if historical data is anything to go by, Coca Cola has increased dividend payments to shareholders religiously for 52 consistent years. Over the last one year, Coke paid $5.8 billion in dividend payments, against free cash flow of $8.6 billion, suggesting the company can comfortably pay its shareholders more.
To be sure, sales have been declining in the U.S. over the past decade, with consumers choosing healthier alternatives. However, Coca Cola is pulling out all the stops to attract this evolving market segment with varied offerings such as Minute Maid juices, Dasani water, Fair-life milk, Honest Tea and energy drinks.
While carbonated beverage consumption is on the decline in the U.S., markets such as India and China (which have relatively lower per capita consumption) are key target areas for Coca Cola and its peers such as PepsiCo.
With plans of $3 billion in cost savings by 2019 through supply chain optimization, standardization of systems and cost allocation, and a 3.1% yield, Coco Cola fulfills all the criteria for a powerful retirement plan.
You may think twice before investing in a company which is synonymous with vices. But the Altria Group, whose Marlboro brand commands over 44% of the U.S. cigarette retail market, has delivered enough reasons for its investors to cheer.
What's commendable is that Altria has emerged victorious despite government regulations, advertising restrictions and declining cigarette sales volumes (between 3% and 4% every year) over the last few years. Cigarettes contribute 90% of Altria's revenues and the company has offset the drop in sales volume by gains in pricing.
Apart from the 46-year history of growing dividends and increasing earnings and revenues, investors also benefited from spin-offs of Philip Morris International, Kraft and Mondelez.
Going forward, the company is expected to sustain its growth-curve. This year, it raised dividends by 8.7%, to $0.565 per share per quarter and the current dividend yield stands at more than 4%. Furthermore, it will distribute 80% of adjusted earnings as dividends to investors with management expecting adjusted earnings-per-share (EPS) to rise between 7.5% and 9.5% this year.
For the future, Altria will not only rely on cigarettes as its growth driver. The company is increasingly expanding its interests in segments such as wine, e-cigarettes and beer, with its 27% stake in brewer SABMiller.
Despite a robust 5.6% dividend yield, telecom giant AT&T is somewhat of an underdog among fund managers, being one of their most under-owned securities.
This could be attributed to the fact that AT&T is a no-growth stock, rising only 19% over the last two decades. However, its dividend income and growth can't be ignored.
Dividend reinvestments paint a very different picture. It is important to note that AT&T has increased dividends every year since 1984. AT&T is growing its user base and is betting big on its merger with DirecTV.
The company's management has stayed on course with its 2015 guidance of a double-digit increase in revenues and consistent consolidated margin expansion.
With third-quarter wireless subscriber additions higher than Wall Street estimates, and DirecTV seeing positive video additions against expected losses, the stock is a rock-solid retirement portfolio choice.
Two words explain why the stock belongs on this list: Warren Buffett. When putting together a wealth-building road map, you should follow the time-honored investment methods pioneered by the Oracle of Omaha.
Everybody knows that the Berkshire Hathaway owner loves companies with consistent and growing dividends and a strong competitive advantage. Berkshire's $25.7 billion investment in Wells Fargo, the largest among any of its holdings, speaks volumes of his interest in the diversified financial services company. With $1.8 trillion in assets, Wells Fargo dwarfs its rivals JPMorgan Chase, Citigroup and Bank of America Corporation.
Wells Fargo has an edge over its peers largely because it can supply the same products as competitors at lower costs. This means wider profit margins for the company and superior returns for stakeholders.
Speaking of dividends, while its yield of 2.7% isn't exactly the best among in our group, the company has increased dividends from 20 cents a share in 2010 to $1.35 cents in 2014. This growth should continue into 2016.
Are you making the right investment moves for your retirement, or are you blowing it by making all-too-common money mistakes? There are crucial steps that you should be taking now, to build wealth over the long haul. To find out whether you'll have enough money in your later years, download our free report: Your Ultimate Retirement Guide.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.