3 Dividend Kings That Belong in Every Retirement Portfolio

In today’s low interest rate environment, retirees who are looking for income from their portfolios are practically forced to look to stock dividends to get anything resembling a reasonable payout. The big problem with that approach is that dividends are never guaranteed payments. If the going gets tough enough, even a once-great business may be forced to cut its payment to protect its ability to stay afloat.

To try to mitigate that risk, some investors look to the so-called Dividend Kings — companies with at least a 50-year history of not only paying, but also growing their dividend payments to shareholders. Although a strong history is still not a guarantee of a bright future, companies on that list have managed to pay their shareholders ever increasing sums, even through some less than ideal economic times. That gives good reason to believe that they’re serious about rewarding their shareholders if at all possible.

With that in mind, we asked three Motley Fool contributors to pick Dividend Kings that could belong in every retirement portfolio. They selected 3M (NYSE:MMM), Coca-Cola (NYSE:KO), and Dover Corporation (NYSE:DOV). Read on to find out why and decide for yourself if you think they could earn a spot in yours.

An industrial titan built on a tradition of innovation

Barbara Eisner Bayer (3M): When I think of a stable Dividend King to add to my retirement portfolio, I like the idea of a company that’s been around for 119 years with a 63-year streak of annual dividend increases. In addition to selling products in 200 countries, it has a commitment to research and development of “the technology and products that advance every company, enhance every home, and improve every life.” That company is 3M.

3M manufactures products we all know and love like Post-it Notes and Scotch tape, which happen to make up the company’s smallest segment, but the big bucks are coming into the company’s coffers from its automotive, design and construction, electronics, healthcare, and transportation segments. By having so many diverse areas of revenue, there’s inherent security; if one segment fails, it won’t have a huge impact on the company’s fortunes. And a stable company is one of the reasons this stalwart deserves to be in your retirement portfolio.

These days, the company has some positive growth prospects, too. Seven analysts recently increased earnings estimates and think investors can possibly receive an earnings surprise of 13.5%.

Then there’s the dividend, which is currently yielding about 3.3%, as of this writing. That’s a pretty decent bonus from a company that offers retirees growth prospects and stability.

I also like that 3M claims sustainability is a “core value” of the company. 3M is making the move to renewable energy and trying to reduce greenhouse gas emissions. So not only can this company provide a good foundation for your portfolio, but it’s also providing a good foundation for saving the environment.

No company is perfect, though, and there is some looming litigation that could have negative financial implications. But 3M is being proactive by setting aside cash to cover any settlements and taking out insurance policies, just in case.

Still, the company has dealt with lawsuits on and off throughout its 119-year history and has always come through. Its resilience is one of the reasons it can have a long and positive life in your portfolio, too.

A beverage giant that knows how to evolve to meet changing consumer needs

Eric Volkman (Coca-Cola): Coca-cola is a well-run company that always finds a way to scale its business. It’s a favorite income stock of investors for many reasons, and as such is a great title for a retirement portfolio.

Let’s start with the basics. Coca-Cola as a business is an easy one to understand. Ever anchored by its namesake product — arguably the most ubiquitous and well-recognized beverage brand on this planet — the company makes and sells a variety of drinks from its huge portfolio. Outside of Coke, brands it owns include Sprite, vitaminwater, Minute Maid orange juice, and the Honest line of semi-sweet beverages.

Many of Coca-Cola’s drinks don’t fall into the fizzy full-sugar category led by Coke. That’s a plus for the company, as the global trend in comestibles currently favors healthier options. Those relatively beneficial offerings from the company act as a hedge against the unfashionable Coke, Sprite, and Fanta.

On the flip side, staying atop the sugary pack helps Coca-Cola take advantage of the comfort foods mini-trend we witnessed during the lockdown months of the coronavirus pandemic. People wanted to stock their pantries and refrigerators with items that took them back to childhood, and the company’s fizzy drinks were ideal for that purpose.

Making beverages like Coke and iced tea isn’t exactly a capital-intensive activity, nor does it require billions of dollars in research and technology. As a result, Coca-Cola has been solidly and consistently profitable, and it is one of the best free cash flow generators on the scene — last year, for instance, its FCF approached a staggering $8.7 billion.

As with many mature businesses with monster cash flows and relatively modest expenditure requirements, Coca-Cola likes to pay its shareholders a dividend. With that vast river of cash that never comes close to running dry, the company continues to raise that payout — its Dividend King status derives from the fact that it’s now made lifts every year for 59 years running.

To mangle the classic quip, the only few certainties in life are death, taxes, and Coca-Cola’s dividend (which, by the by, now has a yield of over 3% to top that of many other blue chip stocks). Little could be better for a retirement portfolio than a near-certain payout from a company that’s best-of-breed in its business, and will continue to be tops in its industry well into the foreseeable future.

A below-the-radar business you may use regularly without realizing it

Chuck Saletta (Dover): Dover could very well be one of the most important companies you may have never heard of. It makes things like fuel pumps, product labeling and tracing systems, grocery store refrigerators, and garbage trucks. It’s certainly not the sexiest set of businesses out there, nor is it necessarily the fastest growing, but it’s a collection of operations that are absolutely key to our modern life.

The fact that its businesses are critical to so many other companies is key to its longevity on the Dividend Kings list. Dover has made it to 66 consecutive years of dividend increases, although the most recent increase from $0.495 per share per quarter to $0.50 per share per quarter wasn’t all that large. Still, at $2 per share per year, investors get both nearly a 1.3% yield and a decent reason to believe that that income could increase over time.

A big part of that decent reason to believe comes from the fact that the dividend represents only around a third of the company’s earnings. That gives it some room to continue the trend even if the company’s expected 14% annualized earnings growth over the next few years doesn’t materialize quite as strongly as analysts hope. If that growth does materialize, Dover’s reasonable payout ratio also gives it room to boost its payout even more.

With both good growth and a decent backlog reported in the company’s most recent earnings call, investors should have some confidence in Dover’s prospects for the near future. When built upon a foundation of a company with 65 years of rewarding its shareholders with increasing payments, it becomes a Dividend King worthy of consideration for your retirement portfolio.

Businesses with long-term track records and decent prospects

In today’s world where passive income for your retirement fund is so hard to come by, companies with long-term track records of rewarding their shareholders and decent prospects of continuing to do so look like attractive prospects. Just remember that dividends are never guaranteed payments, and protect yourself with diversification and by reviewing your holdings to make sure their prospects continue to look good, and you can improve your chances of finding the cash to help you cover your golden years.