4 dividend stocks to supplement your Social Security

Social Security on its own funds a pretty meager retirement lifestyle. But Social Security plus dividend income? That's a winning combo -- especially if you invest in dividend stocks that have a long track record of consistently making and increasing their payments to shareholders.

Income stability and growth

If dividend stocks are paying your bills in retirement, you don't need high yield as much as you need income stability and growth. The stability is important, for obvious reasons. It's not like you can skip a mortgage payment because one of your positions scrapped its dividend for the quarter.

But dividend growth is nearly as critical. Your retirement might last 30 years or more, and your income over those decades has to keep pace with inflation. If it doesn't, you'll start feeling the squeeze in your budget after just a year or two.

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Four dividend stocks for retirement income

Here's a look at four dividend stocks that have proven their ability to deliver income growth for shareholders, year in and year out.

3M produces some 55,000 products across its four business groups: safety and industrial, transportation and electronics, healthcare, and consumer. Products range from the straightforward Post-It Note to a paste that repairs airplanes. The company has paid a dividend consistently for more than a century and has increased its annual dividend for more than 60 years running. The current dividend yield is about 3.4%.

JM Smucker has a portfolio of more than 40 consumer, coffee, and pet brands, including Folgers, JIF peanut butter, Smucker's, Meow Mix, and Milk-Bone. The company generates nearly $1 billion in free cash flow off of $7.8 million in net sales. JM Smucker has increased its dividend for 19 consecutive years, and the average increase is more than 5%. The current dividend yield is a touch above 3%.

Going by its revenue, AT&T is the world's largest communications company. It offers wireless services across its 5G network and provides entertainment through its WarnerMedia business, which includes CNN and HBO.

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WarnerMedia has been hit hard by COVID-19 due to lower ad spending and movie-theater closures, but that creates an opportunity for income seekers. At the current share price of less than $30, AT&T's dividend yield is over 7%. And since the company generated $27 billion in annual free cash flow through the COVID-19 crisis, the dividend appears to be sustainable.

AT&T has paid dividends consecutively for more than 35 years, with an average annual increase of 2%.

Chubb is an insurance provider that caters to consumers and businesses, with a huge range of service lines -- from traditional life insurance to construction risk insurance to specialty reinsurance. The business operates in 54 countries and territories and employs more than 30,000 people globally.

In 2020, Chubb generated operating cash flow of about $9.8 billion. The company has raised its dividend for 28 consecutive years, increasing the payout by an average of 3% annually. Chubb's current dividend yield is 1.89%.

Ticker	Security	Last	Change	Change %
MMM	3M CO.	132.45	-0.50	-0.38%
SJM	THE J. M. SMUCKER CO.	117.97	-2.15	-1.79%
T	AT&T INC.	23.27	+0.19	+0.82%
CB	CHUBB LTD.	290.33	+1.82	+0.63%

Look to the indexes for more options

Roughly 3,000 U.S. public companies pay dividends. Whittling that list down to those that regularly raise their dividend would be a chore if you had to do the research on your own.

Thankfully, there are two indexes that can help: S&P 500 Dividend Aristocrats Index and Nasdaq U.S. Dividend Achievers Select Index. The Dividend Aristocrats are S&P 500 companies that have increased their dividends for at least 25 consecutive years. And Dividend Achievers have increased their dividends consecutively for the last 10 years or more.

A history of dividend increases doesn't guarantee a future of dividend increases, unfortunately. But a company with Dividend Aristocrat or Achiever status is a better bet in this regard than a less seasoned dividend payer.

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To increase a dividend annually for 10 or more years consecutively, a company generally needs disciplined leadership, a stable and growing book of business, and ample cash flow. Those qualities don't often disappear overnight. Plus, the Aristocrat or Achiever label makes the stock more valuable in the eyes of investors -- so the leadership teams are very motivated to keep those dividend increases coming.

Across the Dividend Aristocrats and Achievers, you'll find more dividend stocks suitable for retirement income. It's always smart to choose companies you understand and are interested in following. That way, you'll enjoy spending time keeping up with your dividend payers almost as much as you'll enjoy cashing those dividend checks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Catherine Brock owns shares of AT&T. The Motley Fool recommends 3M.