3 Dividend Stocks for Retirement

Man putting a coin in a piggy bank with a chart of growing value over time in the background.

In retirement, investors should be less worried about finding the next great growth stock and instead turn to looking for a steady stream of cash flows to fund their day-to-day expenses. Companies that pay a dividend through a booming economy and recessions are ideal, but that can make finding retirement stocks challenging.

We asked three of our investors for their favorite retirement stocks and ArcherDaniels Midland Company (NYSE: ADM) , Clorox Co. (NYSE: CLX) , and Colgate-Palmolive (NYSE: CL) were at the top of the list. It's also no surprise that each is a rock-solid dividend stock.

So long as people eat food, this dividend should be safe

Rich Smith(Archer Daniels Midland Company): When looking for stocks to own in retirement, what should you be looking for?

A steady stream of dividend income to supplement your Social Security checks and any pension income you're entitled to is a good start. A profitable company that is making (more than) enough money to afford its dividend is probably also advisable. And how about a stock price that's cheaper than average, just to make sure you're getting a good deal on this new dividend payer in your portfolio?

Well, check, check, and check. Put those three requirements together and you may be looking for a stock like Archer Daniels Midland Company.

Priced at just 17.7 times earnings, the stock costs below the average 24.5 price-to-earnings ratio of stocks on the S&P 500 , yet ADM pays a dividend far above average -- 3.05%, which is one full percentage point more than the average dividend yield on the S&P. And with a payout ratio of only 52% (i.e., 52% of its profits go to pay the dividend), ADM has more than enough money coming in to pay the dividend -- and maybe even enough to raise the dividend a smidgen -- just as it's done for 25 years running .

Call me a crazy optimist, but I think ADM will continue paying, and growing its dividend for years to come. Why? The self-styled "supermarket to the world," ADM's stock in trade is food. ADM buys, transports, stores, processes, and sells such agricultural staples as corn, wheat, oats, and rice. Its business may not be fast growing, but it's never going out of style.

Clean up with this dividend stock

Dan Caplinger (Clorox): Retirees need stability in their dividend stocks , and consumer products giant Clorox has delivered reliable dividends for decades. Earlier this summer, Clorox made its 40th consecutive annual dividend increase , paying shareholders 5% more than it had previously with a $0.84-per-share quarterly payout. That gives Clorox a nearly 2.5% dividend yield, which outpaces the market as a whole and matches up well with its long-term performance.

Clorox has also been able to defy a tough industry environment to generate growth, which is another key component of what retirees have to see in a good dividend stock. Even as some of its larger rivals have struggled to prevent their top lines from moving lower, Clorox has seen sales climb and targeted 3% to 4% higher revenue for fiscal 2017 compared to its year-earlier figures.

Finally, Clorox has an opportunity to accelerate its profits. For the past couple of years, the strong U.S. dollar has held back the multinational giant, because the sales it got from foreign markets translated into fewer dollars. More recently, the dollar has weakened, and that could bring even better earnings results in fiscal 2018. With a strong business model and the possibility of more favorable conditions both in the U.S. and in key emerging markets in the near future, Clorox makes a good pick for income investors in retirement.

The toothpaste dividend

Travis Hoium (Colgate-Palmolive): Another extremely stable consumer goods company is Colgate-Palmolive, who makes toothpaste, bath soap, dish soap, deodorant, and other general cleaning goods we see in grocery and big box retailers every day. The company isn't an exciting growth stock and won't get many headlines, but if you're looking for a stable dividend in retirement , this is a great company to bet on.

You can see in the chart below that Colgate-Palmolive has grown consistently over the last three decades on both the top and bottom lines while the dividend has surged to $1.60 per share at today's payout rate.

CL Revenue (TTM) data by YCharts .

Shares aren't cheap at 26 times trailing earnings, but it's the dividend, which yields 2.3% at today's stock price, that should interest retirees most. Unless people stop buying toothpaste and cleaning products, I think this is one of the safest dividends on the stock market. Colgate-Palmolive won't be a big growth stock, but it's as solid a dividend stock as there is on the market. And that's why it's a great pick for retirement.

10 stocks we like better than The Clorox Company

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*Stock Advisor returns as of September 5, 2017

Dan Caplinger has no position in any of the stocks mentioned. Rich Smith has no position in any of the stocks mentioned. Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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