Top Stocks Retirement Portfolio: 11 Best Stocks to Buy Now

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Retirees have a different set of challenges in their investment planning, than other groups of investors.

Investors in or nearing retirement might have to consider income replacement as a key component of their investment decisions. After all, retirees no longer have a regular paycheck from working to rely on.

In addition to traditional sources of retirement income such as pensions and/or Social Security, retirees can boost their ‘retirement paycheck’ income with dividend stocks.

These are companies that pay shareholders regular income for owning the stock. Not all stocks pay dividends. But the consistent payments from dividend stocks can be a valuable source of income for retirees.

Stocks with low dividend yields may not be as attractive for income investors. This is why we have created a downloadable list of high-yield dividend stocks, classified as stocks with 5%+ dividend yields.

Of course, investors who are interested in purchasing individual stocks should make sure they have researched each company, to ensure it is financially healthy with a strong business model, and future growth potential.

To help with the search, we reached out to two authors of popular investing websites as well as Sure Dividend writers for their individual recommendations.

The following list represents these contributors’ favorite retirement dividend stocks for the remainder of 2022, in no particular order.

This article will discuss 11 top stocks to start your retirement portfolio, with an introduction detailing why income investors might want to invest in high-yield stocks.

High-Yield Stocks Overview

High dividend stocks are especially interesting right now, in the climate of record high stock prices and historically low interest rates.

For example, the average yield of the S&P 500 Index is just 1.6% currently, a fairly unimpressive yield for investors who want to generate income from their stock portfolio.

Unfortunately, not all stocks with high dividend yields should be purchased.

Some stocks have high dividend yields not because the company has increased the dividend payout, but rather because the stock price has plunged. Stock prices and dividend yields move in opposite direction–as a stock price declines, the dividend yield rises (and vice-versa).

Therefore, companies in distressed financial condition whose share prices are declining rapidly, will have a high dividend yield.

But in some cases, an extremely high dividend yield is a precursor to a dividend cut or suspension, which is a bad outcome that investors want to avoid as much as possible.

The following 11 stocks do not necessarily have the highest dividend yields; instead, they have a combination of high yield plus dividend safety, a strong balance sheet, and a sustainable payout.

As a result, they appeal to income investors looking for quality high-yield stocks.

High-Yield Retirement Stock #11: Costco Wholesale (COST)

This best dividend stock selection is from Craig with Retire Before Dad.

Investors beginning to build a retirement income portfolio should look for three attributes when buying individual stocks.

  1. Own businesses you know and understand.
  2. Buy stock in companies with conservative balance sheets.
  3. Aim for reliable dividend payers with a history of dividend growth.

One company that fits this mold is Costco (COST). Costco is a wholesale retailer, operating more than 820 stores worldwide.

Costco charges members a membership fee, providing consistent and predictable cash flow and reducing reliance on product profit margins.

Costco purchases in bulk, allowing it to sell high-quality products to customers at an attractive value.

What I like most about Costco is its inventory model.

Instead of filling the stores with every product imaginable like Walmart or Target, Costco selectively carries only about 4,000 products in its stores, thereby focusing on quality and value while keeping a tidy inventory.

Over the past decade, Costco has increased its e-commerce offerings and sales, but e-commerce was still less than 10% of total sales in 2021, leaving much room to grow.

At the end of the fiscal year 2021 (August 2021), Costco had about $12 billion of cash and short-term investments on its balance sheet and about $8.5 billion in debt.

This conservative ratio should protect Costco against economic fluctuations and keep the dividend solvent. Costco has an 18-year dividend payment and growth streak, paying a current yield of only 0.81%.

However, the company has increased its regular quarterly dividend by an average of 12.6% per year for the past decade and paid four special dividends ranging from $5 to $10 per share in that time frame.

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Costco’s dividend yield has averaged between 2% and 3% over the past decade, factoring in the special dividends.

Costco is a familiar business that is easy to understand, has a conservative balance sheet, and pays a reliable dividend that grows above even today’s high inflation rate.

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Costco’s membership model and pricing power should help it weather economic uncertainty and pay dependable retirement income.

High-Yield Retirement Stock #10: Cisco Systems (CSCO)

This best dividend stock selection is from Prakash Kolli of Dividend Power.

Cisco (CSCO) is not a stock most investors consider for retirement income. The company only started to pay a dividend in 2011.

However, the networking giant has attractive dividend attributes. The 2022 bear market has punished the stock price, and it is down ~30% year-to-date lowering the valuation and increasing the dividend yield.

Cisco is the market leader in networking equipment and software. The company designs, manufactures, and sells Internet Protocol (IP) networking and data center hardware and software technologies.

Cisco spends prodigiously on R&D to maintain its leadership by rolling out new and improved products.

The decline in stock price has simultaneously increased the dividend yield to the higher end of its 10-year range.

As a result, investors are getting a 3.44% yield, more than the 5-year average of 2.99%. The dividend yield is also more than double the average of the S&P 500 Index.

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Source: Portfolio Insight

Investors seeking retirement income will like the yield combined with consistent dividend growth for 12 years. The dividend growth rate has slowed but is still ~8.2% in the trailing five years.

The relatively conservative payout ratio of ~46% portends more future growth. The dividend safety is enhanced by the net cash position on the balance sheet.

From a valuation perspective, Cisco is trading at a forward price-to-earnings (P/E) ratio of approximately 13X, less than the range in the past 5-years and within the range in the past decade.

As a result, investors seeking retirement income to live off dividends can acquire a market leader yielding almost 3.5% with a safe dividend. In my opinion, Cisco is a long-term buy.

Disclosure: Long CSCO

Author Bio: Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor and blogger on dividend growth stocks and financial independence. Some of his writings can be found on Seeking Alpha, InvestorPlace, Insider Monkey, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, FXMag, and leading financial blogs. He also works as a part-time freelance equity analyst with a leading newsletter on dividend stocks. He was recently in the top 100 and 1.0% (81st out of over 9,459) of financial bloggers as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.

Disclaimer: The author is not a licensed or registered investment adviser or broker/dealer. He is not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.

High-Yield Retirement Stock #9: One Gas (OGS)

This best dividend stock selection is from Nikolaos Sismanis.

Oklahoma-based ONE Gas is one of the largest publicly traded natural gas utilities in the United States.

The company provides natural gas distribution services to approximately 2.2 million customers. Specifically, ONE Gas holds market shares of 88%, 72%, and 13% in Oklahoma, Kansas, and Texas, respectively.

The 3.2%-yielding company should make a great addition to any retirement portfolio in its early stages due to shares offering both income and growth prospects.

ONE Gas’ operating cash flows are relatively resilient due to natural gas consumption levels being mostly predictable, especially during the winter months.

Further, due to the company’s dominant market share in 2/3 states it operates in, ONE Gas should continue to gradually grow its net income, powered by incremental population/customer growth and base rate increases as approved by regulators.

Increased profitability is also being supported by economies of scale kicking in as the company expands its distribution network.

In fact, over the past seven years, earnings per share have grown on average by 9.3% per year. Following increased profitability, the company has been able to grow its dividends to shareholders by a compound average growth rate of 15.6% over the same period.

In particular, dividends have grown annually since 2014, when ONE Gas was spun off from ONEOK. The payout ratio stands at a healthy 61%, in line with management’s target range of between 55% and 65%.

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Source: SEC filings, Author

By combining predictable rate increases (which management expects to land between 7% and 8% through 2025) and growth CAPEX, earnings per share are expected to grow between 6% and 8% over the next three years.

Accordingly, management has targeted dividend per share growth of between 6% and 8% over the same period.

Management’s multi-year outlook is what truly differentiates ONE Gas from other companies when it comes to serving a retirement portfolio, as it allows for great investor visibility and reduced levels of uncertainty.

High-Yield Retirement Stock #8: Realty Income (O)

This best dividend stock selection is from Nate Parsh.

Investors should focus on owning the best names in the market when designing a portfolio that can provide income for retirement.

Companies that have a dominant industry position are often able to navigate challenging economic conditions. Many of these companies also have long histories of raising dividends, making their stocks good sources of income.

Realty Income Corporation (O) possess all of these qualities, making the stock a strong candidate for purchase.

Realty Income is a Real Estate Investment Trust, or REIT, that specializes in single-tenant standalone properties, which is a highly fragmented industry, making it ripe for consolidation.

Following a series of acquisitions, which included spinning off its weaker office space unit, the trust has nearly 11,300 properties in its portfolio, a footprint that is largely unmatched by peers.

Realty Income operates a highly diversified business model, which includes nearly 1,100 clients spread across 70 different industries.

No client accounts for more than 4.1% of the portfolio and no industry contributes more than 10.2% of annual revenue.

The trust has properties in every U.S. state and recently expanded to the U.K. and Spain through a merger with VEREIT.

A strong business model has enabled Realty Income to declare more than 620 consecutive monthly dividends since the trust went public in 1994. The trust has raised its dividend more than 114 times over the last 26 consecutive, making Realty Income one of three REITs that qualify as a Dividend Aristocrat.

The trust’s dividend growth streak is likely to continue as its projected payout ratio for 2022 is just 75%, below the 10-year average payout ratio of 84%.

Shares of Realty Income yield 4.6%, nearly three times the average yield for the S&P 500.

High-Yield Retirement Stock #7: Parker-Hannifin (PH)

This best dividend stock selection is from Aristofanis Papadatos

Parker-Hannifin (PH) is a diversified industrial manufacturer that specializes in motion and control technologies. The company was founded in 1917 and has grown to a market capitalization of $30 billion with annual revenues of over $14 billion.

Despite its industrial nature, Parker-Hannifin operates in a niche market, with products that are obscure but essential to the customers of the company.

As a result, Parker-Hannifin enjoys a wide business moat. This is clearly reflected in the exceptional dividend growth record of the company. Parker-Hannifin has raised its dividend for 66 consecutive years and thus it belongs to the best-of-breed group of Dividend Kings.

Parker-Hannifin has achieved its admirable dividend growth record thanks to its consistent earnings growth.

During the last decade, the company has more than doubled its earnings per share, from $7.45 in 2012 to $15.04 in 2021. It has accomplished such a strong performance primarily thanks to a series of acquisitions.

It has acquired smaller companies and has incorporated their products efficiently in its own portfolio while it has also enjoyed great synergies from these acquisitions.

Even better for the shareholders, business momentum has accelerated in recent years.

Notably the industrial manufacturer has exceeded the analysts’ earnings-per-share estimates for more than 20 consecutive quarters.

This is a testament to the strong business momentum of the company and its reliable growth trajectory. In addition, it reflects the impressive resilience of the company to the coronavirus crisis.

Moreover, Parker-Hannifin is currently in the process of acquiring Meggitt, a global leader in aerospace and defense motion and control technologies, for $8.8 billion in cash. Meggitt offers technology and products on every major aircraft platform and has annual revenues of $2.3 billion.

As the deal value is 29% of the market capitalization of Parker-Hannifin and the revenues of Meggitt are 15% of the revenues of Parker-Hannifin, the transaction is likely to prove a major growth driver for the company.

Overall, investors should rest assured that Parker-Hannifin is likely to remain in its long-term growth trajectory, mostly thanks to the acquisition of smaller manufacturers.

High-Yield Retirement Stock #6: Medical Properties Trust (MPW)

This best dividend stock selection is from Felix Martinez.

Medical Properties Trust Inc. (MPW) is a self-advised real estate investment trust formed in 2003 to acquire and develop net-leased hospital facilities.

Right now, the company is one of the world’s largest owners of hospitals, with roughly 440 facilities and 46,000 licensed beds in ten countries and across four continents.

The company is a dividend challenger with nine consecutive years of dividend growth. The company has a five-year compounded annual dividend growth rate of 4.3%.

The company announced the most recent dividend increase in February 2022, when the company announced a 4% dividend increase. The company currently pays an attractive dividend yield of 7.9%, much higher than its five-year average of 5.9%.

Free Cash Flow (FCF) has grown 4.9%/annually since 2012. Analysts are expecting FCF growth of 5.3% for the next three years. For Fiscal Year (FY)2022, analysts expect that the company will make $1.45 per share in FCF, which will increase by 6% compared to FY2021.

This will provide investors with a safe dividend payout ratio, based on the 2022 FCF, of 80%.

Something to consider is the fact that the company continued to pay and raise its dividend during the 2020 COVID-19 Pandemic.

While most REITs cut or suspended their dividend, MPW increased them by 3.8% in 2020 and 3.7% in 2021.

Currently, the stock is attractively valued at 10.4x forward FCF. If the company reverts to its normal P/FCF of 15.3, this will provide a fair price of $22.19 per share. Based on today’s price of $14.65, the stock is 51% undervalued.

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High-Yield Retirement Stock #5: 3M Company (MMM)

This best dividend stock selection is from Quinn Mohammed.

3M is a leading global manufacturer, with operations in over 70 countries. The company’s product portfolio is comprised of over 60,000 items, which are sold to customers in more than 200 countries.

These products are used every day in homes, office buildings, schools, hospitals, and more. 3M has paid dividends to shareholders for over 100 years.

Leadership provided 2022 guidance and sees organic sales growth of 2% to 5%, and earnings-per-share of $10.75 to $11.25.

Our 2022 EPS estimate is currently $11.00. So, the company is growing, and we estimate annual EPS growth of 5.0% over the intermediate term.

The company is currently prioritizing their investments in large, fast-growing sectors which have favorable factors across the globe. Some examples are automotive technology, home improvement, personal safety, healthcare, and electronics.

3M’s technology and intellectual property are its most important competitive advantages. These unique advantages have laid the foundation for 3M to raise its annual dividend for over 60 years without fail.

3M has more than 50 technology platforms and a team of scientists dedicated to creating innovation. Innovation has made it possible for 3M to obtain over 100,000 patents throughout its history, which keeps many potential competitors at arm’s length.

3M continues to invest heavily in research and development and aims to spend around 6% of annual sales on R&D.

3M is a Dividend King and has raised its dividend for 64 years straight. In the last ten years, its dividend has grown at a compound annual rate of nearly 10%. 3M pays an annual dividend of $5.96, and at the current share price, has a high yield of 4.6%. Based on our current earnings estimate, 3M sports a payout ratio of roughly 54%, which is quite safe.

Furthermore, we expect the payout ratio to come down in future years.

Even though the company remained profitable during the Great Financial Crisis, this does not mean it is immune to recessions.

However, it is this consistent profitability that has afforded 3M the ability to continue increasing its dividend through multiple economic cycles. 3M is currently trading well under our fair value estimate and could be a great addition to a retirement portfolio.

High-Yield Retirement Stock #4: Innovative Industrial Properties (IIPR)

This best dividend stock selection is from Josh Arnold.

Innovative Industrial Properties, Inc. (IIPR) is the only publicly-traded REIT that specializes in serving the burgeoning cannabis industry in the US.

Given that, the trust has been afforded a massive head start in what is an extremely fragmented industry, and its portfolio is growing quite quickly as a result.

We expect 18% annual growth in FFO-per-share in the years to come, driven by not only strong revenue growth, but margins as well.

IIPR’s sale-leaseback model is highly beneficial to tenants because it frees up their capital to invest in their businesses, rather than their real estate. IIPR then collects rental revenue off of that, and both sides are better for it.

Not only do we see sizable growth ahead, but IIPR offers a 6.5% dividend yield today, putting it in elite dividend company. The trust has raised its dividend more than 10 times since 2017.

Finally, IIPR trades for under 13 times FFO-per-share for this year, which is well below our estimate of fair value at 18 times.

With the current price of $108 representing just 71% of fair value, we also see big potential for a valuation tailwind in the years to come. That combination of valuation, dividend yield, and FFO growth makes IIPR my top stock pick for this year.

About this best dividend stock selection’s author: Josh Arnold is an independent equity analyst and a prolific writer on the subject of dividend stocks. His work can be seen here on Sure Dividend, as well as other financial sites such as Seeking Alpha.

High-Yield Retirement Stock #3: Verizon Communications (VZ)

This best dividend stock selection is from Eli Inkrot of Sure Dividend.

Verizon Communications (VZ) is one of the largest wireless carriers in the country, with a network covering ~300 million people and ~98% of the U.S. The security’s dividend has also been covering the cash flow needs of retirees for some time.

Many might think of the business as a slow grower, but Verizon has shown some impressive results as of late:

In the 2011 through 2021 period, Verizon has grown its earnings-per-share by 9.6% annually.

However, over that same period, the dividend per share grew by a compound annual growth rate of just 2.5%, meaning the company’s payout ratio declined substantially over this time frame.

Today the dividend payment makes up less than half of earnings, allowing for an ample dividend yield, but it also allows the company to reinvest in its business, keep a strong balance sheet, and repurchase shares.

Moreover, while earnings and dividends have continued to climb, Verizon’s share price has languished to a degree. This makes today’s value proposition more interesting.

In the Sure Analysis Research Database, we are forecasting the potential for 14.6% annualized total returns over the next five years. This is driven by the 5.1% starting yield, 4% expected growth rate and a 7.0% gain from the possibility of a valuation tailwind.

Naturally just because this Is forecast, this does not make it so. All sorts of things can happen in the investment world.

However, Verizon has a variety of positive qualities for a retirement portfolio including a high and sustainable dividend yield, the possibility for growth as the company continues to upgrade its network, and a below average valuation.

Disclosure: I am long VZ.

About this best dividend stock selection’s author: Eli Inkrot is President of Premium Services at Sure Dividend, overseeing the Sure Analysis Research Database, Newsletters and Special Reports. Previously, Eli was an analyst in private real estate, VP and Portfolio Manager for a money management firm, VP for a financial software company and an independent equity analyst. Eli received a degree in Business and Economics from Otterbein University and a Master’s in Finance from the University of Tampa, where he was named the “most outstanding graduate student.”

High-Yield Retirement Stock #2:  Johnson & Johnson (JNJ)

This best dividend stock selection is from Bob Ciura of Sure Dividend.

Retirees have a different set of priorities than younger investors. Specifically, retirees are typically more concerned with preservation of capital and generating income. As a result, my best stock pick for a retirement portfolio is healthcare giant Johnson & Johnson (JNJ).

J&J has an exemplary dividend history. The company has increased its dividend for over 60 consecutive years, giving it one of the longest streaks in the entire stock market.

It has maintained its long history of raising dividends each year, even through recessions, because of a diversified and dominant business model.

J&J has generated approximately 6% revenue growth and 8% adjusted earnings-per-share growth each year, in the past 20 years. It has very large businesses spread across pharmaceuticals, medical devices, and consumer products.

J&J is about to spin off its consumer division, but it will still remain a global leader in two major healthcare categories. After the spin-off, the company will possess 25 individual platforms or products that each generate at least $1 billion in annual sales.

Its global dominance is an added competitive advantage. J&J generates over 70% of its annual revenue from products that hold the #1 or #2 global market position. The company’s industry leadership provides it with steady profitability and growth, even when the economy enters a recession.

Another margin of safety for investors is the company’s pristine balance sheet. J&J is one of only two U.S. companies (the other being Microsoft) that has a ‘AAA’ credit rating from Standard & Poor’s.

J&J stock has a 2.5% dividend yield. While it is not the highest yield around, it is significantly higher than the S&P 500 average yield. And, J&J provides one of the safest business models in the world, along with reliable dividend increases each year.

About this best dividend stock selection’s author: Bob Ciura is President of Content at Sure Dividend. He has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst publishing his research with various outlets including The Motley Fool and Seeking Alpha. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.

High-Yield Retirement Stock #1: 3M Company (MMM)

This best dividend stock selection is from Ben Reynolds of Sure Dividend.

3M (MMM) is a high-quality dividend growth stock with an exemplary financial history. The company was founded in 1902 and has paid rising dividends for an incredible 64 consecutive years.

With a dividend streak of 50+ years, 3M is a member of the elite Dividend Kings list.

3M is a well-diversified manufacturer. The company’s growth has been fueled by its heavy focus on research and development. 3M spends 6% of sales, which is ~$2 billion annually, on research and development.

What makes 3M such a compelling retirement investment now is its elevated dividend yield. The company’s stock currently has a high 4.6% dividend yield. This is a historically high dividend yield for 3M.

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Source: Ycharts

The only other times since 1990 that 3M was trading for a dividend yield of 4% or greater was during the Great Recession and during the COVID-19 crash in 2020.

The primary reason 3M is so inexpensive right now is because the company is facing nearly 300,000 lawsuits surrounding claims that its earplugs used by combat troops were defective.

We don’t believe this legal situation significantly impacts the company’s long-term prospects.

Additionally, 3M has not performed up to its usual exemplary standards over the last few years. In fiscal 2018, the company generated earnings-per-share of $10.46. We are expecting earnings-per-share of $11.00 in fiscal 2022, for tepid growth over 4 years.

Despite recent weakness, there’s much to like about 3M as an investment right now. First, the 4%+ dividend yield is compelling.

Additionally, we expect moderate growth of around 5% a year going forward. And with a price-to-earnings ratio of only 11.8 using our current year expected earnings-per-share estimate of $11.00, we expect significant valuation multiple expansion to our fair value price-to-earnings ratio estimate of 19.0.

3M is a proven high-quality business that rewards shareholders with rising dividends over the long run. The company has not performed up to its usual standards recently, but it still has a durable competitive advantage and ample cash flow generating ability. Near-term headwinds have created a rare chance to buy into 3M stock at a 4%+ starting yield.

About this best dividend stock selection’s author: Ben Reynolds founded Sure Dividend in 2014. Reynolds has long held a passion for business in general and investing in particular. He graduated Summa Cum Laude with a bachelor’s degree in Finance and a minor in Chinese studies from The University of Houston. Today, Reynolds enjoys watching movies, reading, and exercising (not at the same time) in his spare time.

Final Thoughts on Top Stocks Retirement Portfolio

High yield stocks are attractive for investors, particularly retirees, due to their higher income payouts. But investors need to research each individual stock before buying, to make sure the dividend payout is sustainable. This is especially true in an uncertain economic climate. Many high-yield stocks cut or suspended their dividends in 2020 due to the coronavirus pandemic.

The 11 stocks in this article all have leadership positions in their respective industries, along with durable competitive advantages. They also have strong earnings to support their hefty dividends, which will help secure the dividend even in an economic downturn. As a result, these are top stocks for investors to start their retirement portfolios.

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Disclosure: The author is not a licensed or registered investment adviser or broker/dealer. They are not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.

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This post was produced by Sure Dividend and syndicated by Tim Thomas / Timothy Thomas Limited.

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