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3 Great Stocks for Retirees

By Rich Smith – Updated May 24, 2017 at 6:49PM

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Retirement is not a time to chase hot stocks, but an excuse to settle down with stable stocks that let you sleep at night.

Ah, retirement. The golden years. This is the time to be catching up on your reading, playing with your grandkids, maybe seeing the world a bit -- but definitely not a time to be worrying about whether your stock portfolio will crash.

To help you accomplish the former things, and avoid the latter, I've screened for stocks offering four attributes that should appeal to retirees -- and really, anyone looking to own a safe stock:

  • Established companies of decent size ($300 million in market cap and up), with recognizable brand names.
  • That pay a respectable dividend (at least 4%).
  • That don't zig and zag with every wobble in the stock market (showing a beta of less than 1).
  • And last but not least, that don't cost a lot -- at least 20% cheaper than the S&P 500's forward P/E ratio of 25.4.

The following are three stocks that appear well-suited for investors in retirement. Go ahead -- read on and give them a look, and see if you agree.

Old man fishing.

Retirement is a time to enjoy life, not worry about how your stocks are doing. Image source: Getty Images.

Regal Entertainment Group

We begin our search today at the movie theater, with Regal Entertainment Group (NYSE: RGC). Now, you may have heard that things aren't going great in the movie business -- that movie fans are staying home and streaming their entertainment, and that no one goes out to the movies anymore. The facts, however, belie this belief. According to Fortune magazine, 2016 was actually the biggest year in American movie history, with more than $11 billion in box office receipts -- and 2017 is projected to be even bigger.

Regal Entertainment Group is capturing a decent share of this growth, with revenue rising nearly 20% over the past five years, and profits up 360%. Grand as that news sounds, Regal is doing even better than it appears to be. Free cash flow (FCF) has exceeded reported net income in each of the past five years, and over the past 12 months, Regal raked in a whopping $250 million in free cash flow -- 41% more cash profit than the company reported as net income. Thus, while Regal stock looks cheap at 18 times earnings today, if you value the stock on free cash flow, it's even cheaper -- less than 13 times FCF. On top of that, the stock pays a 4.1% annual dividend, which is nearly twice the average payout among S&P 500 stocks.

With numbers this good, it's no wonder Regal sports a below-market beta of just 0.9. This is one rock-solid, cash-generating stock.


Looking for a richer dividend payout, or perhaps just a bit of dinner with your show? Look no farther than restaurateur DineEquity (DIN 5.16%), which runs the Applebee's and IHOP chains in the U.S. -- more than 3,700 restaurants in total.

Priced north of $50 a share, DineEquity stock may not look cheap at first glance. But at a P/E ratio of less than 11, DineEquity stock costs less than half the average stock valuation on the S&P. It also pays a massive 7.6% dividend yield that is nearly four times what the average stock pays.

With a deal this good, you might expect that there is a catch, and you'd be right. With fewer people eating out lately, DineEquity has seen slowing sales. That said, DineEquity is a powerful cash producer already, generating more than $92 million in cash profits over the past year (6% more than reported income). So while the company looks cheap valued on GAAP earnings (with a P/E of just 10.6), it's even cheaper when valued on free cash flow -- less than 10 times FCF, despite paying a dividend several times greater than the average stock pays, and offering a beta less than half as volatile as an average stock.


Last but not least, we come to DSW (DBI 7.01%). By some measures one of America's top three favorite shoe stores, DSW should be a pretty popular pick for stock shoppers as well; it's got a little bit of something for everyone.

For income investors, DSW pays twice the S&P 500 average, for a yield of 4.2% annually. For stability seekers, it boasts a 0.8 beta, indicating below-average volatility. And for value investors, DSW's income statement is a marvel of earnings quality.

Last year, DSW reported net income of $124.5 million, every penny of which was backed up by honest-to-goodness free cash flow -- $125.3 million worth. And that's no aberration. Like the other stocks on today's list, DSW usually generates better free cash flow than it reports as net income under GAAP -- in three years out of the past five, in fact. As a result, this stock that costs just 12.1 times trailing earnings has an almost identical valuation when valued on free cash flow.

So why is the stock so cheap? Probably, this is a factor of the same problem that has been plaguing brick-and-mortar retailers in recent quarters -- consumers' growing preference for shopping online rather than at physical stores. While DSW has fought this trend successfully in recent years, growing its sales 34% over the past five years despite competition from online e-tailers, the company has struggled to keep profits growing alongside sales.

Analysts who follow the stock, however, believe DSW will soon turn the corner, and post at least 5% annualized earnings growth over the next five years. If they're right, then DSW's bargain basement valuation -- less than half the P/E on the S&P 500 -- could be a real steal of a deal for folks who buy today.

Rich Smith has no position in any stocks mentioned. The Motley Fool recommends DSW. The Motley Fool has a disclosure policy.

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