3 Value Stocks for Baby Boomers

Shares of these three promising businesses offer a compelling value and healthy dividends.

Steve Symington
Steve Symington, Jason Hall, and Chuck Saletta
Jun 7, 2017 at 8:20AM
Consumer Goods

One of the primary goals of any investor who buys stocks should be to beat the broader market's returns. But as you approach or enter retirement -- as many who belong to the so-called baby boomer generation are now -- it might be wise to narrow the scope of your portfolio candidates.

To help point you in the right direction, we asked three top Motley Fool contributors to each weigh in with a stock they believe is a good value for baby boomers today. Read on to learn why they chose CareTrust REIT (NASDAQ:CTRE), Anheuser-Busch InBev (NYSE:BUD), and Omega Healthcare Investors (NYSE:OHI).

Man drawing a rising returns chart on a brick wall


A growth stock that's also a good value (and baby boomers should love it)

Jason Hall (CareTrust REIT): Trading for less than 17 times funds from operations, real estate investment trust CareTrust REIT is a bargain in my book. Sure, many of its much-bigger competitors which own healthcare and senior housing properties are cheaper, but the combination of growth and stability that Caretrust offers is certainly worth a premium:

Caretrust REIT Price to FFO chart

Data source: YCharts. Image by author.

At last count, CareTrust owns 161 healthcare and senior-housing properties, making it one of the smallest publicly traded companies in this industry. At the same time, there is going to be a lot of growth in demand for rehab, skilled nursing, and senior housing over the next 20-plus years. Over 3 million baby boomers reach retirement age every year, a trend that will nearly double the population of people age 65 and older, and lead to the need to build a lot more of the kinds of properties CareTrust owns. 

And as a very small player in a very big -- and growing -- pond, CareTrust is well-positioned to grow much bigger from here. And as a REIT, its dividend payouts are likely to grow steadily for many years to come. This steady income growth could help improve baby boomer investors' quality of life in retirement. 

A refreshing dividend and global market leadership

Steve Symington (Anheuser-Busch InBev): It's impossible to deny the industry leadership commanded by Anheuser-Busch InBev. Following the completion of its $100 billion megamerger with SABMiller late last year, the combined brewing juggernauts immediately controlled a 28% share of the global beer market, including a greater-than-50% share in the United States.

Two hands holding beer glasses


Among its hundreds of beer varieties sold around the world, many are popular on a local or regional scale thanks to A-B InBev's propensity for acquiring popular craft breweries to secure a slice of the lucrative craft-beer market. But given a lull on the craft side in recent quarters, A-B InBev's primary source of strength of late has been its enviable trio of global brands including Budweiser, Stella Artois, and Corona. Sales of these brands climbed 12.1% last quarter -- outpacing A-B InBev's consolidated adjusted revenue growth of 7% -- including 16.4% from Budweiser outside the U.S., 21.1% from Stella Artois, and 18.2% from Corona. 

What's more, keeping in mind the integration of SABMiller is a mammoth, ongoing task, A-B InBev has yet to realize around $1.75 billion in cost savings and synergies related to the merger (out of its $2.8 billion target). And with its strong first-quarter 2017 report last month, the company reiterated expectations for continued modest increases over time to its dividend, which yields a healthy 3.3% annually as of this writing. 

With shares trading at a reasonable 24 times this year's expected earnings, I think A-B Inbev offers an enticing combination of dividends, growth, and industry leadership that baby boomers -- or any investor, for that matter -- can appreciate.

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Demographics are destiny -- and potentially profitable, too

Chuck Saletta (Omega Healthcare Investors): As baby boomers are becoming all too aware as they approach retirement, their health may very well be their most valuable resource. Indeed, while spending generally declines the deeper into retirement people get, spending on health-related issues tends to increase with age. One major expense many seniors will face is the cost of assisted living, nursing-home care, or other related services.

That's what makes Omega Healthcare Investors (NYSE:OHI) an intriguing potential investment for baby boomers. Omega Healthcare Investors focuses on financing skilled-nursing facilities, which are expected to continue to be in demand as the number of seniors continues to increase. As long as there's increasing demand for nursing-home facilities, there's a strong chance that there'll be demand for financing those facilities.

Omega Healthcare Investors offers a dividend with an 8% yield, and its dividend has been increasing. While the company does pay out more than 100% of its net profits, its dividend is generally covered by its operating cash flows.  As a Real Estate Investment Trust, the company is required to pay at least 90% of its income as a dividend, and payouts above 100% of net income are fairly common in the industry.

Though high payouts are common among REITs, the payout does illustrate a risk point associated with owning the company. It relies on an increasing share count  and taking out loans  to finance its growth. As a result, if you do consider purchasing its stock, you'll want to keep an eye out on its operations to assure its cash flow growth continues to outpace its financing costs.