Undervalued retirement stocks steal the spotlight when it comes to constructing a robust retirement portfolio. These stocks present opportunities for capital growth and offer a steady income stream through dividend payments. But what sets the best retirement stocks apart? They can sustain dividends based on long-term earnings.

Legendary value investor Ben Graham believed that a company should pay out a consistent portion of its earnings in dividends while retaining enough to support future growth. Traditionally, two-thirds of earnings were earmarked for dividends with the remaining third allocated for reinvestment. However, in today’s landscape with its high capital expenditure requirements, experts suggest a more balanced approach, limiting dividend payments to no more than 50% of earnings. This strategy ensures that companies have ample room for continued dividend growth over the years.

So, if you’re seeking retirement stocks that combine value and income potential, focusing on undervalued dividend stocks with sustainable earnings is a snazzy and unique way to secure your financial future.

Medtronic (MDT)

Medtronic (NYSE:MDT) stands tall as a medical device and therapies pioneer, famously known for inventing the pacemaker. For those searching for top-tier retirement stocks, this company is a name worth treasuring. With an impressive $31.7 billion in annual sales and remarkable profitability, this company knows how to reward its investors.

The company anticipates organic revenue growth between 4.0% and 4.5% for the upcoming fiscal year. The stock is trading at 17.08 times forward price-to-earnings as I write this.

Now, let’s talk dividends. Medtronic dishes out a generous $2.76 per share, covered by both profits and cash flow. Following its fiscal fourth-quarter earnings report in May 2023, the company demonstrated its confidence by increasing its annual dividend by 1.5%.

Here’s where it gets exciting: MDT stock boasts a dazzling 3.2% dividend yield, nearly double that of the S&P 500.

Every little bit counts, my friends. These strategic buybacks fuel Medtronic’s unwavering commitment to raising its dividend. In fact, the latest dividend hike marks an incredible 46th consecutive year of payout growth.

In a confident declaration, Medtronic’s fiscal Q4 press release underscored its commitment “to returning a minimum of 50% of its free cash flow to shareholders.” This return will be primarily accomplished through dividends with share repurchases playing a secondary role.

When you combine Medtronic’s low earnings multiple, enticing dividend yield, conservative dividend payout ratio, and unwavering commitment to buybacks and dividend hikes, you’re looking at one of the cream of the crop retirement stocks that deserves a spot in your portfolio.

Exxon Mobil (XOM)

Exxon Mobil (NYSE:XOM) is a prominent energy stock known for its stability and profitability. It has consistently generated substantial revenue as an oil and gas company, with a remarkable $400 billion in the previous year alone. Furthermore, it has an impressive free cash flow of $62.1 billion, resulting in a 15.5% margin.

What sets Exxon apart is its unwavering commitment to creating value for shareholders. Even during challenging times like the COVID-19 pandemic, Exxon has increased its dividend payout for the past 20 consecutive years.

Exxon’s robust financial position is evident in its ability to maintain consistent dividend increases. This is reflected in the company’s payout ratio, which is a healthy 24.4%. This ratio indicates that the company can comfortably afford to continue raising its dividend, which currently offers an attractive 3.5% yield. In other words, Exxon still has room to increase its dividend payout further.

In late December, Exxon announced expanding and extending its share repurchase program. From 2023 to 2024, the company plans to buy back up to $35 billion worth of shares. This strategy allows Exxon to significantly reduce its outstanding share count, leading to a substantial increase in dividends per share.

Considering Exxon’s remarkable track record of consistently raising dividends over the past two decades, it is highly likely that these payouts will continue to increase. This reassures income-focused investors, particularly retirees who rely on dividend payments. Therefore, Exxon Mobil stands out as one of the best long-term stocks for retirement portfolios.

HP (HPQ)

HP (NYSE:HPQ) is a global powerhouse in imaging and printing products, known for its laser-sharp focus on cutting-edge technologies. This company is firing on all cylinders, with a whopping $63 billion in revenue last year and a mind-blowing $3.9 billion in free cash flow.

What makes HP even more alluring for retirement investors is its undervalued status. The company allocated a cool $1 billion of its free cash flow to dividends, resulting in a mouthwatering 3.4% yield. But hold your horses; that’s not all!

Here’s the kicker: HP’s dividend payout only accounts for a modest 31.3% of its projected earnings per share of $3.35 this fiscal year. That means the company can continue showering shareholders with its generous dividend while having ample excess cash flow.

Speaking of share buybacks, HP didn’t hold back last year. They splurged a massive $4.3 billion on buying back their shares, a hefty 14.5% of their market capitalization. This demonstrates HP’s unwavering commitment to creating value for its loyal shareholders.

This strengthens HP’s ability to hike dividends and reduces the number of outstanding shares, resulting in higher dividend-per-share rates.

Here’s the icing on the cake: HP has a jaw-dropping track record of increasing dividends for 12 consecutive years. Yes, you heard that right. It’s no wonder HP stands tall as one of the ultimate retirement stocks for the long haul.

On the publication date, Faizan Farooque did not hold (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.