Why I'm Building My Entire Retirement Around Dividend Stocks in 2026

I'm building my retirement portfolio around companies with long records of paying durable, growing dividends. My thesis is straightforward. Companies that grow their dividends have historically delivered the highest total returns with the lowest volatility. As I get closer to retirement, I'm seeking both wealth creation and preservation, which dividend growth stocks have historically delivered.

I'm anchoring my portfolio around several core dividend growth machines, including Realty Income (NYSE: O) and WM (NYSE: WM).

What makes a stock suitable for a retirement-focused investment strategy?

The data on S&P 500 companies by their dividend policy is quite clear:

Dividend status	Average annual total return	Beta	Standard Deviation
Dividend Growers & Initiators	10.22%	0.89	15.97%
Dividend Payers	9.20%	0.94	16.71%
Equal-Weight S&P 500 Index	7.74%	1	17.55%
No Change in Dividend Policy	6.87%	1.02	18.45%
Dividend Non-Payers	4.21%	1.18	21.91%
Dividend Cutters & Eliminators	-0.96%	1.22	24.80%

Data source: Ned Davis Research and Hartford Funds.

As that table shows, dividend growers and initiators have delivered higher average total returns than companies with no dividend changes, dividend cutters and eliminators, and those that don't pay dividends. They've delivered higher returns with lower volatility, as measured by both beta (less than 1.0 means it's less volatile than the S&P 500) and standard deviation (a lower reading means it's closer to the average).

However, just because a company has a long history of dividend growth doesn't automatically make it an ideal retirement holding. Several former Dividend Kings (a company with 50 or more years of annual dividend increases) have cut their dividends in recent years. I'm looking for companies with excellent dividend growth histories and strong current financial and growth profiles. In particular, I seek out strong investment-grade balance sheets, durable and strong free cash flow, comfortable dividend payout ratios, and durable growth with ample room to continue expanding.

What makes Realty Income an ideal retirement investment?

Realty Income has increased its monthly dividend every single year since its public market listing in 1994. It has raised the payment 136 times overall, including the last 116 consecutive quarters, growing it at a 4.1% compound annual rate. That aligns with its mission to deliver "dependable monthly dividends that increase over time." Realty Income's exceptional dividend growth track record has helped support its strong total returns (13.5% annualized since 1994).

The real estate investment trust (REIT) has a fortress financial foundation. It has A-rated credit and a conservative dividend payout ratio (it generates nearly $1 billion in post-dividend free cash flow for reinvestment each year). Its diversified real estate portfolio (retail, industrial, gaming, data center, and other properties) generates durable cash flows backed by long-term net leases with many of the world's leading companies. Its strong financial profile gives it ample capital to reinvest in additional income-generating properties. Meanwhile, with a $15 trillion total addressable market opportunity for net lease real estate in the U.S. and Europe, it has a very long growth runway ahead. I have high confidence that Realty Income can continue growing its nearly 6%-yielding dividend at a low- to mid-single-digit annualized rate over the long term. Add in its historically low volatility (0.5 beta), and it's ideal for my retirement portfolio.

What makes WM a foundational retirement investment?

WM is North America's largest environmental solutions company. It has an unmatched position that includes landfills, medical waste incinerators, secured information destruction facilities, recycling facilities, and landfill gas-to-energy facilities. These assets generate highly resilient cash flows because customers need their waste collected and handled, regardless of the point in the economic cycle.

The company reinvests some of its cash flow into expanding its operations (tuck-in acquisitions and expansion projects such as recycling and renewable natural gas production facilities). While it already has a leading $25.2 billion share of the U.S. and Canadian waste and recycling industry, that's still a fraction of the $130 billion total addressable market, leaving plenty of room to continue expanding. Meanwhile, it has a strong record of returning value to shareholders (23 years of dividend increases, an 8.7% compound annual growth rate over the past decade, and a 12.4% cumulative reduction in its outstanding shares since 2015). Add in its fortress balance sheet (A-/A3 credit ratings) and low beta (0.56), and WM is an ideal core retirement holding.

Building a rock-solid foundation

I've built a decent retirement nest egg over the years. While it's not big enough to allow me to retire yet, it's steadily getting there. That's why I'm starting to transition my retirement account toward more dividend growth stocks, such as Realty Income and WM, as they can provide the wealth preservation and growth I need to support a comfortable retirement.

Matt DiLallo has positions in Realty Income and WM. The Motley Fool has positions in and recommends Realty Income. The Motley Fool recommends WM. The Motley Fool has a disclosure policy.