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After losing huge portions of their life savings in the stock market meltdown, many investors are scared to death of stocks. And among investors, no one has more at stake than those who've already retired and are now in a position where they have to make sure their savings last the rest of their lives.

Because of how much retirees have to lose, investing conservatively makes a lot of sense. But that doesn't mean you can afford to stay out of stocks entirely. Fortunately, with the right type of stocks in your portfolio, you can meet many of your financial needs without taking on more risk than you're comfortable with.

What you need
When you think about it, retirees have a much tougher task in investing than people who are still working. During your career, the only thing most people ask from their investments is to grow. Whether that growth comes from rising prices or big dividends isn't important; what's important is getting that account balance as high as it can possibly be on your last day of work.

But once you retire, you need things from your investments that you've never needed before. With a fixed income from Social Security and perhaps a company pension, you need your investments to provide you with regular cash flow to meet living expenses. You also need at least moderate growth from the money you don't need right away, because 20 or 30 years down the road, your expenses are likely to be a lot higher, and if your assets don't keep pace, you run the risk of running out of money before you die.

Perhaps most importantly, you don't have the luxury of waiting out major downturns in your stocks. While younger investors can simply stay the course and expect returns to revert to long-term averages, you need your money now -- and you might not be able to cut back on your expenses during bad markets in the hopes of making back your money.

These stocks have what you need
So with those three goals -- income, growth potential, and stability -- in mind, I set out to find stocks that could deliver on each of those fronts. For income, I only considered stocks with a dividend yield of at least 2.5%, and also weeded out any stock that hadn't grown its dividend payout by at least 10% per year over the past five years.

For growth potential, I was a little bit sneaky. I didn't look to revenue or earnings growth, because those measures can move dramatically from year to year and tend to highlight riskier stocks. Instead, I looked for stocks at attractive valuations that give investors both a margin of safety against future declines as well as the potential for rising share prices if multiples return to higher levels.

And finally, for stability, I looked for low-volatility stocks that accomplished one important thing: limiting losses during the terrible 2008 bear market year to no more than 20%. A 20% decline may be more than a retiree would like to endure, but it's a lot better than the 37% loss the S&P 500 suffered.

Here are the five stocks that passed all these tests:


Dividend Yield

Dividend Growth


2008 Return


Johnson & Johnson (NYSE: JNJ  ) 3.5% 10.9% 0.58 (7.7%) 12.9
Raytheon (NYSE: RTN  ) 2.9% 10.8% 0.66 (14.2%) 11.2
Chevron (NYSE: CVX  ) 3.1% 10.5% 0.75 (18.3%) 11.2
Hudson City Bancorp (Nasdaq: HCBK  ) 5.3% 17.5% 0.63 9% 10.3
Chubb (NYSE: CB  ) 2.6% 11.7% 0.48 (4.1%) 8.5

Source: Capital IQ, a division of Standard and Poor's.

As it turns out, the stocks that pass these demanding tests make up a reasonable portfolio. It's well-diversified, with stocks in a variety of industries that you can expect to react differently in a variety of economic conditions. Chubb and J&J both have decades-long streaks of annually raising their dividends, having earned the esteemed status of Dividend Aristocrats. Even those that fall short of the cut still have decent streaks, with two decades for Chevron, over a decade for Hudson City, and six years for Raytheon.

Other good companies just barely missed the list. McDonald's (NYSE: MCD  ) and Procter & Gamble (NYSE: PG  ) , for example, have the first four factors covered, but their shares are just a little pricier than the five you see here. To round out a portfolio, they're worth keeping on your watchlist in case they get more affordable in the future.

Never give up
Retirees may feel like the stock market is too dangerous for them. But for most retirees, current market conditions make it too dangerous not to own stocks. If you want income and growth potential, you need stocks -- and if you want stability, being picky with these stocks is the best way to keep your portfolio under control.

Retirees love high-yielding dividend stocks, but you have to be careful with them. Find the right ones in the Fool's free special report, "13 High-Yielding Stocks to Buy Today."

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance.

When it comes to thinking about retirement, Fool contributor Dan Caplinger is old beyond his years. He doesn't own shares of the companies mentioned in this article. Chevron, Johnson & Johnson, and Procter & Gamble are Motley Fool Income Investor choices. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson, which is a Motley Fool Inside Value pick. The Fool owns shares of Johnson & Johnson and Raytheon. Motley Fool Alpha owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy works hard so you won't have to.

Read/Post Comments (21) | Recommend This Article (85)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 24, 2011, at 6:04 PM, prginww wrote:


    I really enjoy your articles but find myself to be a different situation apparently than most retirees. I do not spend my income as I live by myself, do what I want and have what I want. My stocks are for my children's inheritance. I buy whenever I accumulate money and have no need for it, which is only two or three times each year. I do not have nursing home insurance so my portfolio may have to cover some of that. I am 77 years old and last summer rode my Suzuki Hyabua over 6000 miles out west over three weeks. I am sure that there are other seniors that have a similiar perspective of investing. I own such stocks as PM,MO,Kraft, Bershire B, Intuitive Surgical,J&J,Intel,TexInst,GE,T.

    Thanks for listening.

  • Report this Comment On January 24, 2011, at 6:25 PM, prginww wrote:

    Hey, I would add the payout ratio in your analysis. A company that pays out only 10 percent of its net income has normally a higher growth as well as a higher dividend growth. Your minimum yield of at least 2.5 percent in dividend yield is in my view no important criteria. P/E and beta are good measures, if the net income represents the free cash flow. I researched 20 stocks with low beta ratios (below 0.5) and a dividend yield of more than two percent. I called them Safe Harbor stocks with best Yields. Here are the results:

    The average P/E ratio is 14.14 and the average dividend yield amounts to 3.76 percent. Price to book ratio is 3.94 and price to sales ratio 1.73.

  • Report this Comment On January 24, 2011, at 6:41 PM, prginww wrote:

    I suggest Real Estate Investment Trusts (REITs), and utility stocks for retirees who are looking for a lot of income and some growth. I also suggest changing how we look at retirement - for example a retiree could convert their hobby into a business. If you like pool - why not start a used pool table business? People get tired of those pool tables and want to get rid of perfectly good merchandise. You turn around and offer to sell those used pool tables for close to the price that a new pool table goes for. And while you are waiting for customers you can also run a pool hall. Your social needs are met, you are helping the youth of the community, and hopefully make enough money to cover the rent and supplement your retirement income

  • Report this Comment On January 24, 2011, at 7:58 PM, prginww wrote:

    With all do respect, I have a $400,000 portfolio and can't see living on $18000 a year. You guys must have substantial capital to work with -- am I missing something here -- other than too little saved?

  • Report this Comment On January 24, 2011, at 8:10 PM, prginww wrote:

    the same people who lost heavily in the last correction will get back in right at the peak of the market only to lose the rest of their money....

  • Report this Comment On January 24, 2011, at 8:21 PM, prginww wrote:

    @lihpd -

    Thanks for your comment. It's a good point you raise; if you're planning to leave everything to your kids and don't need most of your assets to live on now, then you can be much more aggressive, effectively investing on behalf of them rather than for yourself. In that case, it makes more sense to invest in what would be most appropriate for them, which is likely quite different from what you'd invest in for yourself.


    dan (TMF Galagan)

  • Report this Comment On January 24, 2011, at 8:22 PM, prginww wrote:

    @Fundament -

    You're obviously correct that payout ratio is important. I didn't want to get too complicated with this article. I would point out, though, that for some people, a yield of at least 2.5% is critical to give them the income they need now without having to sell shares or dip into principal elsewhere. Thanks for adding your own screen results!


    dan (TMF Galagan)

  • Report this Comment On January 24, 2011, at 8:26 PM, prginww wrote:

    @bongonorm -

    Trying to get more than 4% to 5% from your retirement nest egg each year increases your risk of running out of money over the long run, so yes, ideally it'd be better to have more than $400K if you're not comfortable living on $16K to $20K (plus whatever you get from Social Security and/or other income sources). But even if you have more capital, being too conservative could leave you in the same income-starved position. The portfolio I suggest is a middle ground.


    dan (TMF Galagan)

  • Report this Comment On January 24, 2011, at 8:37 PM, prginww wrote:

    Shocked not to see BAM or LUK on this list. Even with the lower dividend payout, both of these stocks perform alot better than any stock on this list with avg returns of 18-20% annually over the last ten years.

    Better than any return on any stock.

  • Report this Comment On January 24, 2011, at 9:04 PM, prginww wrote:

    why would anyone buy chancy stocks when you can buy realestate contracts that pay anywhere from 12 % up at 50% ratio i have made a lot of money doing it and on stocks havent made diddly to compare. plus motly fool always put out 30 dollar stocks to buy and if you buy 1000 shares it has to go up at least 1 dollar to make 1ooo 30000 will make me at least 300 per month steady so silly

  • Report this Comment On January 24, 2011, at 9:37 PM, prginww wrote:

    @traviscwaller -

    Both LUK and BAM lost well over half their value during 2008. Taking that kind of risk can justify the long-term returns you're talking about (although LUK's is closer to 11-12%), but the volatility can be too much for skittish retirees who aren't in position where they can afford to lose half or more of their capital.


    dan (TMF Galagan)

  • Report this Comment On January 24, 2011, at 11:53 PM, prginww wrote:

    GABUX pay 13.5% annually & pays the dividend every month. The share price hasn't varied by more than $1 since 2006. You get little to no growth, but you can't sneeze at 13.5%.

  • Report this Comment On January 24, 2011, at 11:54 PM, prginww wrote:

    GABUX pay 13.5% annually & pays the dividend every month. The share price hasn't varied by more than $1 since 2006. You get little to no growth, but you can't sneeze at 13.5%.

  • Report this Comment On January 25, 2011, at 8:01 AM, prginww wrote:

    @Tom48 -

    Gabelli's utility fund has had pretty good performance, but its share price has moved a lot more than you suggest. When you take dividends out, the actual price of the fund has fallen from as high as $9.69 in May 2007 to as low as $4.83 in March 2009 - a drop of half. Even now, prices have rebounded only to $6.53, so you're still looking at shares having lost a third of their value in less than four years. That's often a problem with funds and ETFs with managed distribution policies that pay high dividends without the net asset value gains to back them up.


    dan (TMF Galagan)

  • Report this Comment On January 25, 2011, at 9:01 PM, prginww wrote:

    Retirement is obviously a hot button from the number of responses above. Thanks, Dan.

    But no one has asked why, in Jan, 2011, you are using 2008 figures in your chart above??

  • Report this Comment On January 26, 2011, at 2:13 PM, prginww wrote:

    I am retired and love stable sustainable dividend stocks. Here, growth may not be important but dividend value is. In some cases, we may want a hybrid of growth and DVND of about 15% stable. This depends on age and necessities of income now. So, the perspectives change. But due diligence is a must regardless of age of investor to change direction if threats are noticed!

  • Report this Comment On January 26, 2011, at 2:17 PM, prginww wrote:

    I like your forum which allows transparency of what individual investors do and they share that information. These discussons are educational and often useful for our own researach and investments. Keep up the good work, participants in this forum

  • Report this Comment On January 28, 2011, at 4:19 PM, prginww wrote:

    I too appreciated the article and insightful discussion. I have a question though, the recommended HCBK stock rated a D Schwab Equity rating and almost all the research results on the Charles Schwab website said either sell, neutral or hold. Am I missing something?

    By the way, I am 45 and have approx 9+ years until retirement.

  • Report this Comment On January 28, 2011, at 5:42 PM, prginww wrote:

    Why not stay with what got ya there ? If your still high on stocks like AAPL , NVIDIA , Nat. Instuments , UNH , etc . , why not stay with them unless your no longer interested in watching the market & buying & selling stocks , and I don't think most retiree's are . Why give up growth just because your ' retired ' ? Give your portfolio a chance to still grow . If you want to mix in some ' safe ' stocks with good dividends , that's fine too . But to just change over to all dividend stocks seems ' FOOLISH ' TO ME .

  • Report this Comment On January 28, 2011, at 8:51 PM, prginww wrote:

    I have heard this strategy before and went out and bought 2 GREAT dividend stocks. One was GE at 38 and the other Bank Of America at close to that price. Perhaps you can tell me where those stocks and dividends are today?

  • Report this Comment On October 11, 2013, at 5:11 PM, prginww wrote:

    I like J&J, but like TOT over CVX, CBU over HBCK. GLT, AAPL, and the much smaller cap MLR fill out my core. TOT is not for tax deferred accounts, though, because you can't take the foreign tax credit.

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