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You spend many years attempting to build a nest egg large enough to afford you a comfortable lifestyle in retirement.

But will this be enough?

While many are concerned with their portfolio’s size, we believe that you should seek to build a portfolio that provides you with enough income to cover retirement expenses. To us, the income that your portfolio produces is almost as substantial as its size of it.

We feel that the Dividend Kings, a group of stocks that have raised dividends for at least 50 consecutive years, is an excellent place to start a search for quality stocks to own. Many stores in this group offer high yields that can help boost your portfolio income.

Keep reading if you’re looking to consistently generate passive income with stocks to get a grip on your financial future.

Why Your Traditional Portfolio Sucks (and What To Do About It)

It has long been a Wall Street belief that you need a mix of stocks and bonds to you well into the golden years when you’re entering retirement.

Traditionally, this has meant a weighting of 60% stocks and 40% bonds. Not being overweighted towards stocks helped protect the portfolio in a recession. The stock portion of the portfolio also provided the opportunity for growth. In this typical asset allocation, bonds acted as a ballast, not moving too high or too low and giving income.

While this model may have worked in years past, it is not so helpful today, with interest rates hovering near zero. The Federal Reserve has also stated that it intends to keep interest rates low for as long as the COVID-19 pandemic impacts the economy. Low-interest rates could keep a lid on the income that bonds can offer you.

Investors include bonds in their portfolios for their income; you might have to look to riskier bond assets to meet their needs. This results in you trading the relative security of higher-rated bonds for those with a lower investment rating. Unless you are risk-averse, you may be uncomfortable doing this.

However, there is another option.

You could pick high-quality dividend stocks with lengthy track records of dividend growth.

Many companies do not pay dividends, usually because they remain in the growth stage of their businesses. Every available dollar is reinvested to help create future growth. It’s true for stocks in the technology sector.

Eventually, strong businesses find themselves flush with ample cash flow to meet their needs. They can then decide to do two things with the excess capital: repurchase stock, pay a dividend, or both.

Share repurchases represent a set amount of cash used to buy back stock. Often, the authorization states that the company may repurchase up to a certain amount of stock, but this does not guarantee that it will do so. For example, a $1 billion repurchase authorization could be less if the company decides not to utilize the total amount.

The ability to pay a dividend is a sign of a business that produces steady cash flows. Usually, companies begin paying a dividend to continue doing so. Distributing a dividend one quarter only not to do so the next would signify that the company was poorly run and not financially disciplined enough to continue paying the dividend.

Also, many Dividend Kings have dividend yields considerably higher than bonds offer. The total returns for many companies belonging to the Dividend Kings group could be in the double-digit range, which gives you an appealing combination of growth and yield.

Harness The Power of These Awesome Companies

The only requirement for achieving Dividend King status is that companies must have raised the dividend for at least 50 years. Currently, there are just 31 Dividend Kings, a small fraction of the total number of companies in the market.

Initiating, maintaining, and growing a dividend requires a company to allocate a portion of its capital to continue funding the dividend. Creating the dividend shows that a company is committed to returning regular money to shareholders.

Maintaining the dividend lets shareholders know that the company’s business is operating on a reliable basis. Increasing the dividend tells you that the company believes its business will continue to grow. In the last case, you are getting the best of both worlds: a growing business and an increasing dividend.

The real test of a company’s commitment to dividend growth occurs during a recession when the economy enters a downturn.

Companies that can continue to grow their dividend during a recession demonstrate that their products, goods, or services remain in high demand amongst consumers. This is evidence that such a company is much stronger than others in its peer group.

Companies that can raise the dividend through multiple recessions have potent businesses. And those are the names we feel you should consider purchasing if you want to build an extra income.

Stocks in the Dividend Kings have experienced up to eight separate recessions in the past 50+ years and have still increased their dividends. Despite some of the worst periods for the economy, they had their dividends survive and grow.

This shows a strength that the majority of companies do not have.

If it were easy to navigate multiple recessions without a dividend cut, you would have more than just a handful of Dividend Kings available.

Can’t Keep Up? 2 Endorsed Companies You Should Look Into 

Many of the Dividend Kings represent the best-of-the-best in dividend safety. Even among such dividend royalties, a few names stand out as excellent investment opportunities.

1. Federal Realty Investment Trust (FRT) 

Federal Realty is a real estate investment trust, otherwise known as a REIT, that focuses on owning properties in the high-income, densely-populated coastal regions of the United States.

This allows the confidence to charge more per square foot than its peers. Federal Realty trades with a $6.7 billion market capitalization and had revenue of $933 million in 2019.

Federal Realty has increased its dividend for 53 consecutive years. The dividend has grown at almost 8% per year since 2010. Shares yield 4.8% today.

Unlike regular companies, REITs are valued on the funds-from-operation, or FFO, that they produce instead of earnings-per-share, or EPS. FFO is a better measurement of profitability, and cash flow as REITs often have high deprecation rates, making EPS an inaccurate measure of trust performance.

Federal Realty has increased FFO at a rate of almost 7% per year over the last decade. The COVID-19 pandemic has impacted recent results, but we feel that the trust, given its business model, will provide FFO growth of 7% per year over the next five years.

Federal Realty trades at ~$87 today.

Based on a normalized FFO of $6.00, the stock is valued with a price-to-FFO ratio of 14.5.

We feel a five-year target price-to-FFO rate of 15 properly values the trust, making the stock slightly undervalued today. Combining our expectations for FFO growth, dividend yield, and benefit from multiple expansions, we believe that Federal Realty has the potential to return 12.5% per year over the next five years.

2. Dividend King is Altria Group (MO)

Following Philip Morris International (PM) spinoff in 2008, Altria Group focuses on the U.S. market.

The company is the maker of leading cigarette brands, including Marlboro. Altria also has investment stakes in Anheuser Busch InBev (BUD) and Cronos Group (CRON). The company has a market cap of $78 billion and had revenue of almost $20 billion in 2019.

With 51 consecutive years of dividend growth, Altria is one of the newer Dividend Kings. The company has raised its dividend at an average of 8.4% per year for the last decade. Shares currently offer a high yield of 8.2%. The company has increased EPS by more than 11% over the previous decade, even as tobacco usage has declined among U.S. consumers.

We are taking a more conservative approach regardless of future growth and anticipate yearly EPS growth of 3% through 2026.

Shares of the company are trading at $42 today, using an expected EPS of $4.31 for 2020, the stock trades with a price-to-earnings ratio of 9.7. We have a five-year target valuation of 11 times earnings. EPS growth, dividend yield, and valuation expansion could add up to 13.7% in annual returns over the next half-decade.

These are just two examples of high-quality Dividend Kings with high dividend yields and recession-resistant business models that can continue to generate rising dividends over time for shareholders.

You Now Know How to Build Reliable Passive Income with Stocks

The Dividend Kings have demonstrated the ability to grow dividends over too long periods, often through some of the most adverse economic periods. These are the types of companies we feel you should consider owning, as they have the proven ability to raise distributions regardless of the economic conditions.

If you’re clueless about where to start investing, we recommend Dividend Kings like Altria and Federal Realty Trust. These investments can provide the boost in your income you need to reach financial freedom faster.

This was written by


Chris founded FWO, the ultimate destination for those looking to achieve financial independence, explore the world and stay motivated daily.

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