3 Dividend Stocks That Are Perfect for Retirement

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You shouldn't have to spend your retirement years worrying about your investments or trying to track down the best long-term stocks for your portfolio. So to help investors find a few solid stock ideas that are perfect for retirement, here are three companies handpicked by Motley Fool contributors.

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They chose 3M (NYSE: MMM), Kinder Morgan (NYSE: KMI), and AT&T (NYSE: T). Here's why.

Retire rich with this dividend champ

Neha Chamaria (3M): In retirement, you need to look beyond dividend yields and pick stocks that can offer stable and steadily growing dividends regardless of the business cycles, underpinned by strong growth in earnings and cash flows. 3M is a perfect example.

3M stock currently yields only 2.2%, but its dividend record is hard to match: The conglomerate has paid a dividend every year for 100 years and increased its annual dividend for 60 consecutive years. Last month, it rewarded shareholders with a tidy 16% dividend hike, marking its 60th dividend increase. So how has 3M pulled this off, and what are the future prospects for its dividends?

For the first answer, I'd credit three factors to have supported 3M's dividend streak: a hugely diversified business that spans more than 60,000 products serving several industries under top brands like Post-it and Scotch, management efficiency in generating good returns from assets and capital, and prudent capital allocation.

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You can rest easy that 3M's dividends aren't going anywhere, what with management aiming for 8%-11% growth in earnings per share and 100% free-cash-flow (FCF) conversion (percent of net income converted to FCF) through 2020. I expect 3M's financial targets beyond 2020 to be equally encouraging, simply because this isn't a high-flying company but a classic "go slow and win" kind. If you'd invested in the company 10 years ago, you'd have made nearly 300% total returns since. I can't say if the future will be as great, but going by 3M's commitment to shareholders, you should still make hefty returns for years to come, especially if you reinvest the dividends.

A world-class company that's just now getting its dividend mojo back

Chuck Saletta (Kinder Morgan): In today's market, it's hard to find companies paying strong dividends that are available at a bargain price. With pipeline giant Kinder Morgan, you get a rare chance to buy a business with real potential to be a dividend dynamo as it emerges from its troubles.

Back in late 2015, Kinder Morgan slashed its dividend to protect its balance sheet when Moody's got spooked by its leverage as the pipeline giant bailed out NGPL -- a fellow pipeline that was struggling. Over the past few years, Kinder Morgan has used the savings from its lowered dividend to reduce its leverage and has improved things to the point where it's ready to resume raising its dividend.

Based on its announced plan from last summer, Kinder Morgan expects to raise its yearly payout from $0.50 in 2017 to $0.80 in 2018, $1.00 in 2019, and $1.25 per year in 2020. It recently reconfirmed those plans , and unlike many companies that hope for dividend growth, Kinder Morgan already makes the money to cover those increased dividends. It's already on pace to generate over $2 per share in distributable cash flow this year, offering solid coverage for that payment.

At a recent price of $17.50 per share, investors today are buying a company with an impressive 7% expected yield on cost in just two short years. Investors looking for a dividend stock as part of their retirement portfolio could do far worse than this one.

A longtime dividend play that's looking to the future

Chris Neiger (AT&T): The telecom giant has made a lot of headlines lately as it gears up to fight the Department of Justice in court next month for the right to acquire Time Warner. If AT&T wins, it will get CNN, HBO, Warner Bros. studios, and a host of other media that would make it a key player in both the content and content delivery spaces. AT&T CEO Randall Stephenson said on the most recent earnings call that the company remains "very confident" that it will complete the merger.

While investors hold their breath awaiting the outcome, there are still plenty of things going right for AT&T. It's the second-largest wireless service provider in the U.S., behind Verizon Communications. And in its fourth quarter of 2017, which was reported at the end of January, the company secured 400,000 postpaid smartphone net additions. AT&T's churn rate -- the rate at which customers leave for another service -- sat at an all-time low of just 0.89%.

Revenue of $41.7 billion was essentially flat year over year and adjusted earnings per share of $0.78 were up 18% from the year-ago quarter. The company also gained 368,000 DirecTV Now -- its subscription TV service -- net additions in the quarter.

Investors should know that AT&T is in transition right now as it attempts to build its media empire through the Time Warner deal. That could mean some volatility with its share price and some less-than-stellar quarterly results. But AT&T still pays a very strong dividend yield of 5.1% and has raised it for 33 consecutive years. That makes the telecom company a strong candidate for almost any retirement portfolio. And if AT&T pulls off its Time Warner acquisition, it will have even more to offer long-term investors.

10 stocks we like better than AT&T
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Chris Neiger has no position in any of the stocks mentioned. Chuck Saletta owns shares of Kinder Morgan and has the following options: long January 2020 $20 calls on Kinder Morgan, short January 2020 $20 puts on Kinder Morgan, short March 2018 $18 puts on Kinder Morgan, and short March 2018 $22 calls on Kinder Morgan. Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Kinder Morgan and Verizon Communications. The Motley Fool recommends 3M and Time Warner. The Motley Fool has a disclosure policy.