Retirement investing involves a certain degree of stability and risk-aversion. As opposed to young investors just starting out who have a long time horizon to recover from losses, investors in or nearing retirement can't afford to gamble on speculative investments. That's why retirement portfolios typically consist of income-generating investments, such as bonds.
But with interest rates still sitting near historic lows, yield from fixed income is hard to find. After all, the yield on the 10-Year U.S. Treasury Bond is barely above 2%. Never fear, retirees: There are plenty of stocks out there that pay strong income, without requiring you to take abnormally high risks.
One specific sector of the market that is ideal for retirees is the consumer staples sector. This is a group consisting of companies that provide a wide range of household products that are used every day across millions of homes worldwide. And, no discussion of consumer staples stocks is complete without mentioning the biggest of them all, Procter & Gamble (PG 0.60%).
With that in mind, here's why retirees should give strong consideration to P&G.
Stability backed by a stable of strong brands
P&G is a megacap company, with a market capitalization in excess of $225 billion. That makes it one of the biggest companies in the world, and as such, it's a model of stability. P&G has a huge number of brands that each rake in billions of dollars every year, including Tide laundry detergent, Crest toothpaste, Bounty paper towels, and Gillette shaving products.
P&G takes great pride in the "Leadership Brands" that make up the majority of its business. These brands, 23 of them in all, each generate annual sales of at least $1 billion. Some bring in more than $10 billion in revenue each year. Not only that, but P&G has an additional 14 brands that each collect between $500 million and $1 billion in annual sales.
It should come as no surprise that P&G is about as stable as they come. The company rakes in about $83 billion in annual sales, and registers solid growth year in and year out. It was no different in fiscal year 2014, in which P&G produced 3% growth of organic revenue and 5% growth of core earnings per share, versus the prior year. This was due to a combination of higher volumes and favorable pricing initiatives.
Fortunately, P&G's success allows it to generously reward shareholders with a strong dividend.
Reliable profits flow through to shareholders
Since P&G is so solidly profitable, and because it does not operate a highly capital-intensive business, it can afford to pay strong dividends every year. In addition, the company can easily manage regular increases to its dividend each year, which helps protect investors' purchasing power from the ravages of inflation.
P&G has increased its dividend for an astounding 58 years in a row. This includes a solid 7% increase earlier this year. P&G has paid a dividend to shareholders for an amazing 124 consecutive years, ever since its incorporation in 1890.
P&G provides a solid 3% dividend yield, which beats the yield of the broader stock market. Retirees should give preference to P&G for two major reasons. First, P&G offers a higher dividend yield than many fixed-income alternatives. Second, bonds don't offer protection against inflation. Fixed income carries that name because the income investors receive is fixed over the duration of the bond. Stocks with growing dividends, on the other hand, offer investors the opportunity to improve their purchasing power over time.
The bottom line is that for retirees concerned with reliable income generation and stability, P&G stock is a great choice. P&G has dozens of world-class brands that generate tens of billions of sales every year that provide reliable profits. With these profits, investors are generously rewarded.
