Most investors in their golden years are searching for low-risk stocks that offer up an income stream and are trading at an attractive valuation. Knowing that, we asked a team of Fools to share a stock they believe fits these criteria perfectly. Here's why they picked Ford Motor Company (F 6.10%), AT&T (T -1.21%), Kroger (KR 0.64%).
Image Source: Ford.
A household name, a fat 5.3% dividend -- and a value price
John Rosevear (Ford Motor Company): Why Ford? Let's start with the basics:
- It's a strong, profitable business right now. Trucks and SUVs are highly profitable products that are in high demand around the world, and Ford has good ones that are selling well.
- It's preparing for the future. New CEO Jim Hackett has promised to speed innovation while sharpening up the less-profitable parts of Ford's business. That's exactly what the company needs to keep those strong profits coming as new technologies like self-driving cars and electric vehicles transform the auto industry.
- It pays a great dividend that CFO Bob Shanks thinks Ford will be able to sustain through a recession (unless it gets really bad, of course).
- Its stock is cheap, at just 6.9 times Ford's expected 2017 earnings.
Why so cheap? Ford's stock, like those of other big automakers, has struggled recently for a couple of reasons. First, the U.S. new-car market is probably past its cyclical peak, meaning sales and profits are likely to get squeezed over the next several quarters. Second, some analysts worry that companies like Ford could get "disrupted" by high-tech innovators (though Ford is doing plenty of its own innovating to keep pace).
There have been some additional concerns with Ford, specifically that the company was spending too much on future-tech without a clear idea of the returns -- and possibly at the expense of its current products and businesses. Those are the reasons Ford's board of directors ushered Mark Fields into an early retirement and promoted Hackett to the top job: They think Hackett has what it takes to put Ford back on course.
If so, Ford's stock might not be cheap for long.
A wireless leader who isn't going anywhere
Travis Hoium (AT&T): Rather than trying to hit home runs, older investors should be focusing their time on investing in companies that generate stable cash flows and will be paying a dividend for many years to come. And that makes AT&T a perfect stock for senior citizens.
AT&T in 2017 isn't the sexiest company, and results can be up and down depending on how aggressive competitors are promoting their services, but you can see below that long term, AT&T's returns are very steady. And that's what drives the 5% dividend yield you see in the stock today.
T Revenue (TTM) data by YCharts.
What I like about AT&T right now is that it's making all of the right strategic moves. It's going to be one of the leaders in 5G networks as they start rolling out later this year, and the acquisition of DirecTV gives it a new bundling option. There's clearly a trend toward digital television, and the companies that can attract customers and even offer bundles with wireless services will be a step ahead of the competition. I think we'll see 5G and streaming TV become attractive options for consumers, and they could drive both top-line growth and margin expansion in years to come.
For senior citizens, AT&T's consistent results and big moves to build next-generation wireless and streaming services are a perfect combination. And the 5% dividend yield is the kind of payout investors of all ages should love.
This recession-proof business is on sale
Brian Feroldi (Kroger): While the grocery industry is intensely competitive, Kroger's has proven itself more than capable at fending off the competition. One way it has done so is by using its massive buying power to help keep its costs low. That helps it to price its products aggressively and still make a profit. When combined with the company's knack for acquiring competitors -- in recent years it has acquired Roundy's, Harris Teeter, Fred Meyer, and others -- Krogers has grown its market share for 12 straight years.
While Kroger's broad portfolio of brands and scale have helped it to thrive over the long term, a number of events are working against the company in the short term. Food deflation has slowed comparable-store sales, while competitors continue to race to the bottom on price. When combined with some accounting nuances, the company was recently forced to reduce its earnings outlook for fiscal 2017. That has put a lot of pressure on the company's stock, which has pulled down its share price to a 52-week low.
Despite the near-term challenges, Kroger's management team continues to believe the company is capable of growing profits in excess of 8% annually over the long term. When combined with the company's dividend yield of 1.6%, it isn't hard for me to believe that Kroger's stock can provide investors with total returns in the high single digits from here. That's why I think right now could be a great time for low-risk investors to give Kroger's stock a closer look.
