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3 Dividend Aristocrat Stocks To Boost Your Retirement Income Potential

If you’re building an investment portfolio for your golden years, it makes sense to buy some quality dividend-paying stocks that offer predictable income as well as long-term growth potential. One challenge that beginners face is how to distinguish such companies.

One way to achieve the goal of making passive income is to focus on the Dividend Aristocrats Index, which includes many companies that have increased their dividends for at least 25 consecutive years.  

A dividend track-record spanning over a quarter of century is a solid indicator that these companies can produce steady, reliable income for their investors, not just during the good times, but also during downturns and recessions.

Here, we've put together a list of three dividend stocks from this group to provide a sense of their strength and how you can use their examples to find other, similar candidates for your portfolio.

1. Target 

The biggest concern that should be addressed when picking a dividend stock for a retirement portfolio is whether the company is capable of producing strong cash flows in both good and bad times. Minneapolis-based retailer Target (NYSE:TGT) certainly fits the bill.

Target Weekly Chart.
Target Weekly Chart.

The company has steadily increased its dividend every year for the last 49 years, a period that covers crises like the dot-com collapse of the early 2000s, the financial crash of 2008-2009 and the COVID-19 pandemic of the past year. While delivering cash to investors each quarter, the discount retailer has also maintained a very conservative payout ratio of about 22%, a level below the industry average. 

That strength comes from Chief Executive Officer Brian Cornell’s efforts to make Target's retail outlets more attractive. He spearheaded the remodelling of hundreds of stores, introduced many affordable fashion brands and bolstered the retailer’s e-commerce offerings. During the pandemic, Target has been using its stores more as mini distribution centers for its booming digital business, to better fulfill online orders. 

In an earnings report released this month, Target said that its comparable sales—those from stores and digital channels operating for at least 12 months—rose 23% from a year earlier. The growth rate was twice that of the same quarter last year.  

Target pays $0.68 a share quarterly with an annual dividend yield of 1.21%. The payout has grown more than 6% each year during the past five years.

2. Abbott Laboratories 

Just like retailers, health care stocks can also provide a regular and growing income stream to retirees. Health care providers offer services that remain necessary even during a recession. Plus, economic swings don’t typically curb the roll-out of new drugs and medical devices.

In this space we like Abbott Laboratories (NYSE:ABT), a global medical devices, generic drugs and nutritional products maker. The Illinois-based company has paid dividends every year for nearly half a century, making it a solid name to have in your portfolio. 

During the pandemic, Abbott has seen its diagnostic sales thrive after it invented BinaxNOW, an over-the-counter home testing device for the COVID-19 virus. The device brought in $2.2 billion in revenue during the first quarter of this year. 

Abbott Laboratories Weekly Chart.
Abbott Laboratories Weekly Chart.

Even after the COVID pandemic is contained, Abbott Labs’ growth prospects are bright. The company has a diversified portfolio, making everything from glucose monitors to surgical tools. Demand for such products is ongoing, generating consistent free cash flows and dividend income for investors.

Shares of Abbott have weakened about 3% this year, closing Wednesday at $116.75. Still, the health care provider has delivered impressive returns over the past five years, gaining 200% including dividends. 

The company pays $0.45 a share quarterly dividend with an annual dividend yield of 1.52%. The payout has grown over 8% each year during the past five years.

3. McDonald’s

Some health-conscious consumers may not like McDonald’s (NYSE:MCD) because of its fast food menu, but shares of this global restaurant chain offer a wholesome way to lock in steadily growing dividends. The company has raised its payout each and every year since 1976, when it first started paying dividends.

McDonald's Weekly Chart.
McDonald's Weekly Chart.

McDonald’s has many qualities that retirees look for in a top income stock: the company has a global competitive advantage over rivals, a solid recurring revenue model and a great history of compensating its investors.

After struggling through the pandemic, when lockdowns hurt its restaurant business, the company is regaining its sales momentum fast. Last month, it raised its 2021 global sales outlook, saying it expects U.S. sales during the current quarter to outpace pre-pandemic levels.

MCD pays quarterly dividends of $1.29 per share. That translates to an annual dividend yield of 2.2% at the current stock price. With a manageable payout ratio of 73%, the company is in a strong position to continue delivering dividend growth going forward.