3 Dividend Stocks for Retirement

By Brian Feroldi, Travis Hoium, and Demitrios Kalogeropoulos Markets Fool.com

Investors in their golden years should prize stability and income above all else. Knowing that, we asked a team of Fools to highlight a company that they believe is an ideal choice for a retiree. Here's why they pickedAmerican Water Works (NYSE: AWK),Colgate-Palmolive (NYSE: CL), and McDonald's (NYSE: MCD)

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Quenching your thirst for stability

Brian Feroldi(American Water Works): Utilities have been a go-to industry for retirees for decades. These businesses usually provide essential services as regulated monopolies that make them as dependable as a stock can get. That makes them an ideal choice for investors who crave stability.

Image source: Getty Images.

One utility I believe is worthy of consideration is American Water Works. This company provides drinking water and wastewater treatment services for 15 million people in47 U.S. states. While the demand for water remains stable in nearly all market conditions, this company has developed a rock-solid business model that allows for steady gains on the bottom line. That strategy calls for regular rate hikes, acquisitions, and general operationalimprovements. When combined, they've allowed the company to post steady improvements in EPS.

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AWK EPS Diluted (TTM) data by YCharts.

Looking ahead, management expects that this simple playbook will allow the company to grow its EPS by an average of 7% to 10% annually between now and 2021. If true, that should easily allow for steady increases to the dividend.

American Water's stock isn't exactly a screaming bargain at the moment, but given the dependable nature of the business, I think it's a fine time for a retiree to add a few shares to her portfolio.

A dividend aristocrat for your retirement

Travis Hoium (Colgate-Palmolive): Investing in retirement isn't about trying to hit a home run; a high batting average is what's most important. Colgate-Palmolive is never going to be an explosive growth stock, but the company makes consumer staples people need -- and generates a lot of cash doing so. The chart below shows that since 1990, Colgate-Palmolive has seen its earnings per share jump nearly 10 times, and dividends paid annually are up over 14 times.

CL data by YCharts.

Colgate-Palmolive has paid a dividend since 1895, so there's the consistency investors should like in retirement. Toothpaste and cleaners are also very sticky in consumers' lives and unlikely to be disrupted by new retail trends like online retail. In fact, if management chooses to leverage online sales, going directly to customers could help increase margins long term.

Toothpaste may not be an exciting business to invest in, but in retirement, the consistency of the 2.2% dividend yield is more important. And it's that consistency that makes Colgate-Palmolive a staple stock for any retiree's portfolio.

Fast-food dividends

Demitri Kalogeropoulos(McDonald's): McDonald's represents an attractive balance between income and growth potential right now. The fast-food giant recently kicked off its 2017 fiscal year with surprisingly strong sales gains as it expanded on last year's all-day breakfast launch and doubled down on its value menu offerings. Comparable-store sales jumped 4% globally and were up a healthy 1.7% in the U.S. division.

CEO Steve Easterbrook and his team are making positive strides at recapturing a chunk of the market share Mickey D's lost to casual dining specialists in the last few years. Their strategic initiatives include improving food quality and preparation methods while aggressively attacking areas like coffee, smoothies, and snacks. The restaurant chain also sees a big opportunity to lead the industry in digital ordering and home delivery.

While they wait for moves like these to ideally turn customer traffic levels higher again after two years of declines, income investors should benefit from surging profits. After all, McDonald's franchising initiative helped produce a 14% spike in operating income last quarter. That meaty growth pace is likely to continue as the company sells off thousands of its corporate-owned locations to focus its business more directly on high-margin franchise and real estate fees rather than direct restaurant sales. And so, while the stock seems expensive at 26 times trailing earnings, its potential for market-beating profit growth ahead and its 2.5% dividend yield should make McDonald's a solid bet for long-term investors.

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Brian Feroldi has no position in any stocks mentioned. Demitrios Kalogeropoulos owns shares of McDonald's. Travis Hoium owns shares of McDonald's. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.