If you're in your 70s and retired, let me offer my congratulations. You've done something that today's data shows working Americans will likely struggle to do: retire comfortably.
But just because you're retired, it doesn't mean your investment journey has ceased. With people living longer these days, seniors now more than ever before have to ensure that they won't outlive their money. This means the greatest wealth creator on the planet -- the stock market -- remains a viable wealth-building tool, even for those in their 70s.
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Perfect stocks for retirees in their 70s
However, investing while in your 70s is far different from how you likely invested while working. Your ability to withstand bouts of volatility has diminished considerably now that you've hit your golden years, and you're probably more focused on a combination of wealth preservation and income generation than anything else.
Taking these points into consideration, here are three perfect stocks that retirees in their 70s should consider buying.
Johnson & Johnson
The first stock retirees in their 70s need to give strong consideration is healthcare conglomerate Johnson & Johnson (JNJ -0.09%), which has raised its annual dividend in 55 consecutive years -- fewer than 10 publicly traded companies have a longer annual streak -- and is one of only two companies to bear Standard & Poor's highest credit rating of AAA. That's a higher credit rating than the U.S. government!
The beauty of Johnson & Johnson is the inelasticity and diversity of its product portfolio. J&J isn't just one enormous company. It's actually composed of more than 250 subsidiaries, many of which complement one another. This allows J&J to slide slower-growing or non-core pieces out through divestment, as well as to acquire faster-growing pieces that complement its long-term strategy without disrupting its larger business. Plus, given that people can't control when or what ailments develop, J&J's healthcare business is more or less recession-proof.
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Also, Johnson & Johnson's three core business segments each serves a purpose. Pharmaceuticals, which makes up nearly half of J&J's sales, are fast-growing and high-margin. Unfortunately, branded therapeutics only have finite patent protection periods, which is why the other half of J&J's business, and its ongoing pharmaceutical research and collaborations, hedges this possible weakness. The company's consumer health products segment is slow-growing, but it has excellent pricing power and predictable cash flow. Meanwhile, medical devices may be growing at a subpar rate for now, but they present a long-tail growth opportunity in knee, hip, and spine surgeries as baby boomers age.
Currently, J&J is yielding an above-market 2.5% dividend and sporting a beta of slightly less than 0.7 (implying it's only 70% as volatile as the S&P 500). For retirees in their 70s looking for an income safety net, J&J could very well be it.
NextEra Energy
Energy utilities are another very smart option for retirees in their 70s to consider, but my suggestion would be to put your more traditional electric utilities on the back burner and instead focus on an industry leader in renewable energy, NextEra Energy (NEE 0.40%).
Whereas most electric utilities are focusing on how they'll go green in the future, NextEra has been bulking up on alternative energy usage for years. In 2015, the company produced more electricity from solar power and wind than any other company on the planet! As of May 2016, the company listed 12,560 MW of wind-energy capacity -- and this was prior to the completion of 1,500 MW of additional wind farms last year. It also added on the order of 1,200 MW of solar capacity across six states and 10 sites last year. While renewable energy projects aren't cheap, it'll result in lower long-term costs for NextEra Energy, and below-average costs for NextEra's customers as well.
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Another key point we shouldn't overlook is that NextEra Energy is a predominantly rate-regulated utility (it operates in 30 states, as well as Canada). The obvious downside of rate regulation is that NextEra needs the OK from a state's energy commission before it can pass rate hikes along to consumers. On the other hand, being regulated means minimal exposure to fluctuations in wholesale electricity pricing, leading to predictable sales, cash flow, and profitability.
With NextEra Energy, retirees get a company that offers a basic-needs product (electricity), along with a 2.8% dividend yield and a very low-volatility stock (beta of 0.34). It's an untraditional electric utility that could reward those in their 70s with share price appreciation and healthy quarterly income.
United Parcel Service
The final company that retirees in their 70s may benefit from adding to their investment portfolio is United Parcel Service (UPS -0.08%), which most people know as UPS.
The first factor about UPS that makes it so attractive is the high barrier to entry in the logistics business. You can count on one hand how many competitors have even the remotest of a chance of disrupting UPS' business or prying away its loyal customers. This creates a pretty clear picture of what UPS' management team needs to focus on to remain an industry leader, and it also gives UPS some exceptional pricing power, especially with expedited deliveries.
Image source: United Parcel Service.
United Parcel Service also benefits from the long-term growth of global economies. Over the long run, the U.S. and global economies tend to grow in size, as does the world's population, providing a pretty steady opportunity for UPS' logistics services to see demand tick higher. In other words, the numbers are very much in UPS' favor over the long term.
UPS plans to maintain or boost its intermediate and long-term growth by focusing its efforts on technological improvements. The company's annual technology budget is in excess of $1 billion, and it's looking for ways to optimize efficiency and keep consumers happy. This includes My Choice delivery alerts to consumers, synchronized delivery solutions, and even a next-generation mobile device for its drivers that the company believes will transform the way services and information are provided.
With UPS, retirees get a 3% dividend yield, below-average volatility (beta of 0.85), and a company that appears poised to benefit with the seemingly slow and steady growth of the global economy.
