10 Dividend Stocks That Will Let You Retire (Update2)

(Story updated to add that Duke Energy and Progress Energy filed a new merger plan Wednesday with state utilities regulators.)

BOSTON ( TheStreet) -- A cornerstone of any investment portfolio is low-volatility stocks, that is, those that don't react sharply to market swings and, as a result, have more reliable returns over time.

Those types of investments have proven to lose less in down markets or periods of faster inflation, helped by dividends.

"Over the past 50 years, the least-volatile stocks have performed about as well as the market, but with far less risk," Morningstar analyst Samuel Lee writes. "Low-volatility stocks have outperformed in most international stock markets studied, too."

They can be your best friends if you are risk-averse, only a few years away from retirement or in the early years of retirement and want to maintain stock-market exposure, so stuff some into your 401(k).

But investors should be cautioned that these stocks underperform in bull markets, as is evident in returns this year. The S&P 500's index is up about 8% for the year, but most of the top 25 stocks summarized below are showing losses.

Therefore, investors should buy these stocks and tuck them away for perhaps as long as a decade or through several market cycles to gain the most benefit. In that time, their hefty dividends also come into play and help offset their periodic sluggish performances.

We reviewed the stock holdings of the exchange traded fund PowerShares S&P 500 Low Volatility ( SPLV), which consists of the 100 stocks from the S&P 500 with the lowest volatility over the past 12 months.

What follows are the top 10 stocks in the PowerShares S&P 500 Low Volatility ETF by portfolio weighting, and following that, a list of the next 15 holdings of the fund, to give investors additional ideas for potential buys:

10. H.J. Heinz ( HNZ)

Company profile: H.J. Heinz, with a $17 billion market value, is an international maker of packaged foods, including ketchup, condiments, sauces, frozen food, soups, beans, pasta meals, and infant nutrition items. International sales account for 60% of its revenue.

Heinz reported last Friday that in its fiscal third quarter just ended, sales grew 7% to $2.92 billion and earnings to 88 cents per share, up from 84 cents per share a year ago. The company also said it expects fiscal 2012 earnings of $3.32 to $3.34 per share from continuing operations, excluding special items.

Investor takeaway: Its shares are down 0.8% this year, but have a three-year annualized return of 21%. Over 10 years, its annual average return is 6%. The stock has a dividend yield of 3.58%.

S&P has it rated "strong buy" with a $60 price target, a 12% premium to the current price. Analysts give its shares seven "buy" ratings, three "buy/holds," nine "holds," one "weak hold," and one "sell," according to an S&P survey.

9. Progress Energy ( PGN)

Company profile: Progress Energy, with a market valuation of almost $16 billion, is one of the largest regulated utilities in the U.S. and in the midst of trying to get even bigger in a merger with another firm on this list Duke Energy ( DUK). S&P said it expects the merger will be approved and conclude early this year. Duke and Progress filed a new merger plan Wednesday, their third attempt to get state and federal approval for the $26 billion deal, according to a report in the (Charlotte (N.C.) Observer.If approved, they now hope to close on it by mid-year.

Investor takeaway: Its shares are down 5% this year, but have a three-year average annual return of 18% and a 10-year return of 5.7%. The stock has a 4.71% dividend yield.

Analysts give its shares 17 "hold," ratings and one "weak hold" primarily due to the pending merger. But Morningstar says the company's aim is to take advantage of growth opportunities at its regulated utilities during the next decade and so "merger or no merger, we think this strategy should produce more consistent returns and turn Progress into a classic income stock."

8. Xcel Energy ( XEL)

Company profile: Xcel Energy, with a $13 billion market value, has utility operations in eight states, stretching from northern Minnesota to Texas, and it serves 3.4 million electric customers and 2 million natural gas customers. It bought two natural gas power plants in 2010, which should help operating margins given the cheap price of that gas.

Investor takeaway: Its shares are down 4% this year, but are up 18% annually on average over the past three years. Over 10 years, it's 4.4%. The stock has a 3.93% dividend yield. Analysts give its shares five "buy" ratings, two "buy/holds," 10 "holds," and one "weak hold." It's expected to earn $1.78 per share this year and that will grow by 6% in 2013.

7. Kraft Foods ( KFT)

Company profile: Kraft, with a market value of $67 billion, is the second-largest packaged food company in the world and the biggest in North America. However, the company's management has plans to break it up into a global snacks business and North American grocery brands. Its products include snacks, beverages, cheese, and convenience meats, and its brands include Nabisco, Oscar Mayer, Maxwell House, Jell-O, Chips Ahoy and Kool-Aid.

Investor takeaway: Its shares are up 3.3% this year and have a 21% annual rate of return over the past three years. Over 10 years, it's 2.4%. The stock has a dividend yield of 3.01%. Analysts give its shares 10 "buy" ratings, four "buy/holds," and six "holds," according to an S&P survey.

6. Duke Energy ( DUK)

Company profile: Duke, with a $28 billion market value, and already one of the nation's largest multistate holding companies of regulated electric and gas utilities, with operations in the Carolinas, Indiana, Ohio, and Kentucky, is awaiting federal regulatory approval to merge with Progress Energy, as mentioned above. Duke and Progress filed a new merger plan Wednesday, their third attempt to get state and federal approval for the $26 billion deal.

Investor takeaway: Its shares are down 4% this year, but up an average 20% annually over the past three years and, over 10 years, the average annual return is 4%. Its shares carry a 4.79% dividend yield. S&P says it views the merger as "moderately positive," and that it will cause the earnings per share growth rate to rise to 5% annually. Analysts give its shares one "buy/hold" rating, 17 "holds," and one "weak hold."

Those same analysts expect to earn $1.43 per share this year, a 1% increase. Its management recently reaffirmed its 4% to 6% long-term target earnings per share growth rate.

5. Consolidated Edison ( ED)

Company profile: Consolidated Edison, with a $17 billion market value, owns two regulated utilities: Con Ed of New York and Orange & Rockland. They provide steam, natural gas, and electricity to customers in southeastern New York, including New York City, and parts of New Jersey and Pennsylvania.

Investor takeaway: Its shares are down 5.8% this year, but have a three-year annualized return of 20% and, over 10 years, it's 7.1% annually. Its shares have a 4.18% dividend yield. Analysts give its shares 12 "hold" ratings, six "weak holds," and two "sells." It's expected to earn $3.74 this year and that it will grow by 3% next year.

4. Kellogg ( K)

Company profile: Kellogg, with a market value of $18 billion, is one of the world's largest producers and marketers of cereal, cookies, crackers, and other convenience foods under the brands: Frosted Flakes, Corn Flakes, Rice Krispies, Pop-Tarts, Eggo, Keebler and Morningstar Farms. Its products are sold in more than 180 countries and international sales are about a third of its revenue.

Investor takeaway: Its shares are up 2.8% and have a three-year annualized return of 12% and, over 10 years, the annual return is 6.4%. Its shares have a 3.31% dividend yield. Analysts give its shares three "buy" ratings, one "buy/hold," 18 "holds," and one "weak hold."

3. Kimberly-Clark ( KMB)

Company profile: Kimberly-Clark, a $28 billion company, is one of the world's largest health and hygiene products makers, selling bathroom tissues, diapers, feminine products and paper towels. Its brands include Kleenex, Scott, Huggies and Kotex. Non-U.S. sales are about 45% of revenue.

Investor takeaway: Its shares are down 3% this year, but have a three-year annualized return of 18% and, over 10 years, it's 4%. They carry a 3.92% dividend yield. Analysts give its shares one "buy" rating, one "buy/hold," 13 "holds," and one "weak hold," according to an S&P survey.

2. Procter & Gamble ( PG)

Company profile: Procter & Gamble, with a market value of $177 billion, is the world's largest consumer-products manufacturer, with a lineup of famous household brands that include: Tide laundry detergent, Charmin toilet paper, Pantene shampoo, Cover Girl cosmetics, Gillette shaving products, and Iams pet food.

Investor takeaway: Its shares are down 2.7% but have a three-year annualized return of 11.8% and, over 10 years, the average return is 6.6% annually. The stock carries a dividend of 3.26%. Analysts give its shares eight "buy" ratings, six "buy/holds," 10 "holds," and one "weak hold." Those same analysts project earnings of $4.05 per share this year and that they will grow 9% next year.

1. Southern ( SO)

Company profile: Southern, one of the most widely held stocks in the U.S., generates and distributes electricity to more than 4.4 million customers in the Southeast. It owns four electric utilities -- in Alabama, Georgia, Florida and Mississippi.

Investor takeaway: Its shares are down 3.8% this year, but have a three-year annualized return of 18% and, over 10 years, its average annual return is 9%. The stock carries a dividend of 4.29%.

S&P has its shares rated "hold," on valuation concerns, but said it expects long-term operating earnings growth of 4% to 7% and that dividends will continue to grow in the range of 3.8% annually. Analysts give its shares two "buy" ratings, one "buy/hold," 15 "holds," three "weak holds," and one "sell."

Stocks 11 to 25 include: cigarette company Altria ( MO), beverage and snack seller Pepsi ( PEP), fast-food chain McDonald's ( MCD), retailer Wal-Mart ( WMT), drug maker Eli Lilly ( LLY) and natural gas seller Dominion Resources ( D).

The remaining companies are cereal maker General Mills ( GIS), utility company NextEra Energy ( NEE), soup maker Campbell Soup ( CPD), health-care products giant Johnson & Johnson ( JNJ), agricultural-products leader ConAgra ( CAG), beverage conglomerate Coca-Cola ( KO), drug maker Abbott Labs ( ABT), electric and natural gas utility Wisconsin Energy ( WEC) and drug company Bristol-Myers Squibb ( BMY).

>>To see these stocks in action, visit the 10 Stocks That Will Let You Retire portfolio on Stockpickr.
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.