2 top dividend stocks for retirement

Dividend stocks play a role in my retirement planning. By buying now, you can hopefully generate additional income in the years leading up to retirement.

But I also think that it is possible to have these shares in retirement. They can provide a regular source of income to help supplement your retirement. Here are some dividend stocks I would buy now with an eye toward the future, if I had the money to invest.

British American Tobacco

Tobacco is an industry in long-term decline. However, this has been true for decades and may be the case for many more. Meanwhile, spending a huge amount of cash flow that allows cigarette manufacturers to pay huge dividends.

One of them is British American Tobacco (LSE: BATS), a company whose shares I already own in my retirement. It is a multinational giant behind such brands Lucky Strike and Pall Mall. Its business is dominated by tobacco but in recent years it has rapidly expanded its non-tobacco business. They hope to break even by 2025.

The company pays dividends every month. It has raised its payout every year for over twenty years. Today, the company’s stock has a yield of 6.5%.

For now, at least, I think the company will continue to increase its annual payout. However, if the decline in cigarette sales causes too much profit, the dividend may be cut. This is a risk with all dividend stocks because payouts are not guaranteed.

Unilever

Another stock I would put in my current portfolio with a focus on the long-term future is the consumer goods giant Unilever (LSE: ULVR).

Dividend stocks depend on strong cash flow to keep paying. Usually, businesses can keep paying even after a year or two in business. But over time, to keep returning cash to shareholders, businesses must generate excess capital.

I think Unilever is well positioned to do this. In the most recent year, for example, the company generated €6.4bn in free cash flow. This allowed it to pay a dividend of €4.5bn while saving money to reinvest in the business.

Long term business model

I think the business can continue to generate strong cash flow for decades. Its focus on everyday products, from soap to bleach, means demand for Unilever’s products should remain high. Indeed, the company estimates that 3.4 billion people use their products every day. That’s about 44% of the world’s population.

I expect demand to remain high, although growing environmental awareness among consumers may cause some to buy fewer items, hurting sales.

price power

But targeting a large market is only part of being successful. Competitors can also try to take advantage of it, hurting their profits.

That’s where Unilever’s portfolio of premium brands for example dove and Magnum come into play. They provide pricing power. This has come in handy lately as the company battles inflation, which remains a risk to profits. So far, however, Unilever has been successful in raising its own selling prices to offset rising costs.

With a 3.5% yield, I’d be happy to use some of the cash to buy Unilever shares for retirement.