Embrace 'Dividend Aristocrats' for a Regal Retirement

NEW YORK (TheStreet) -- Some retirement planners embrace the "Age in Bonds" school of thought that advises investors to increase the amount of bonds owned as they age. For example, a twenty-year old should have 20% of their holdings in bonds. By contrast, someone who is 80 should have an 80% position in bonds. That is recommended so that the investor has retirement income from stable securities.

The best way to assure that there is steady income from secure retirement holdings is to not own any bonds at all and instead buy what are known as "Dividend Aristocrat" stocks, such as Coca-Cola (KO), ExxonMobil (XOM) and Wal-Mart (WMT).

I believe that anything a bond can do, a Dividend Aristocrat can do much, much better. The primary appeal of a bond for retirement purposes is to supply a consistent stream of income. To become a Dividend Aristocrat, a publicly traded company must have increased its dividend for at least 25 consecutive years.

Just paying a dividend is a solid indicator from a company. It signals that the executive management of the company feels that it can reward the shareholders with a cash payment while still upholding their fiduciary duty. That is a strong sign when a company can continue to responsibly fund its commercial activities and still pay a dividend from the cash generated from the core business operations.

To increase it every year for well over two decades is an even more bullish sign.


Over the past 25 years there have been wars, recessions, even a terrorist attack on the United States. Yet, over that period of time, Coca-Cola, ExxonMobil, Wal-Mart and other Dividend Aristocrat stocks have managed to increase the dividend payment annually. At present, there are more than 50 of them. It is difficult to come up with any bond that has increased its interest payment annually over the past 25 years.

The yields from "Dividend Aristocrats" can be much higher, too.

Currently, the yield on a five-year Treasury security is under 1.50%. Bonds from Coca-Cola that mature in September 2016 have a yield to maturity of 1.06% and 0.73%. The dividend yield from Coca-Cola is now 2.98%. For Exxon-Mobil, the dividend yield is 2.81%. Wal-Mart has a dividend yield of 2.58%.

While Coca-Cola bonds that mature in September 2016 are certainly stable, the interest payment will not increase. History dictates that the dividend income to the shareholders of Coca-Cola, ExxonMobil, Wal-Mart and other Dividend Aristocrats will continue to grow.

For income and security, it is difficult to find a better investment for long-term objectives than Coca-Cola, ExxonMobil and Wal-Mart. Sure, the prices will drop, but as income investments, there is no reason to sell. The dividends have a history of increasing even in adverse market and economic conditions.

I believe it is far better to buy Dividend Aristocrat stocks for the long term to generate retirement income rather than the "Age in Bonds" theory.

At the time of publication, Jonathan Yates did not have a position in any of the stocks mentioned in this article.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Jonathan Yates has written for numerous publications including Newsweek and The Washington Post. He is a former general counsel for a publicly traded corporation. Much of his career was spent working on Capitol Hill for Members of Congress in both the House and Senate. He has degrees from Harvard University, Georgetown University Law Center and The Johns Hopkins University.

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