If there's one thing you don't want in your retirement portfolio, it's a high level of uncertainty. The ideal stocks are those that should do relatively well over the long run and pay nice dividends along the way.
CVS Health: A prescription for success
More retired Americans means good news for CVS Health. As people age, they tend to need more prescription drugs. CVS Health operates over 9,600 retail pharmacies in 49 states plus the District of Columbia, Puerto Rico, and Brazil. These pharmacies should be well-positioned to gain more business over the coming years.
CVS Health also claims the second-largest pharmacy benefits management (PBM) business in the U.S. PBMs help control prescription drug costs for payers by negotiating lower costs with drugmakers, managing high-cost specialty medications, promoting use of generic drugs, and reducing waste. As you might imagine, the opportunities for PBMs, particularly large ones like CVS Health, are expected to grow as the number of older Americans increases.
The company projects average annual earnings-per-share growth of 10% over the long term. That's not bad, especially considering that CVS Health also pays a solid dividend with a current yield of 2.55%. The pharmacy services giant uses only 34% of earnings to fund its dividend program, which means there's plenty of room for future dividend hikes.
Intel: Changing with the times
Intel stands out as a technology company that has effectively changed with the times. The company initially developed semiconductors but switched to focus on making microprocessors. Intel is now a leader in powering cloud-based data centers and in the Internet of Things.
Investing in technology stocks could be scary to retired investors. Intel's size and ability to adapt should minimize any worries. The company generated $10.3 billion in profit last year on $59.4 billion in revenue. Intel has used its deep financial resources to expand into new areas, most recently announcing plans in March to acquire self-driving car technology pioneer Mobileye.
While many tech stocks are priced at stratospheric levels, Intel stock trades at only 12 times expected earnings. That valuation is made even more attractive by the company's dividend yield of 3.08%. Intel has a good track record of increasing its dividend and expects to continue dividend hikes in the future.
United Parcel Service: Delivering for investors
United Parcel Service (UPS) delivered an astounding 4.9 billion packages last year. The company expects that volume to keep on rising in the coming years as e-commerce continues to reshape the retail industry.
UPS is investing in several areas that should fuel additional growth. The company is developing new solutions that enable its customers to create highly flexible supply chains for supporting mass customization. It has focused on expanding capabilities to support the rapidly growing healthcare industry. And UPS has continued to build out its global network. In 2016, the company's fastest-growing markets were China, Vietnam, Pakistan and the United Arab Emirates.
When it comes to operating profitably, UPS leads the industry with an operating margin of 14.6%. That helps the company pay out a nice dividend, which currently yields 3.2%. UPS also spent nearly $2.7 billion on share repurchases last year and expects to buy back another $1.8 billion of its stock in 2017.
All three companies are well run. All three should deliver growth and solid dividends. If you could only pick one of these three stocks, though, my view is that CVS Health would be the best bet.
CVS Health is in an enviable position to benefit from an unstoppable demographic trend. The stock is also attractively valued. In addition, CVS Health is in a better position than either Intel or UPS to increase its dividend in the future. Retirees shouldn't go wrong with any of these stocks, but CVS Health could be the biggest winner over the long run.
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