There are plenty of options available for investing your money with retirement in mind. Some are definitely better than others, though. The ideal stocks for retirement are companies with enduring business models that pay solid dividends.
Three stocks that definitely meet those two criteria are Cisco Systems (CSCO 0.35%), International Business Machines (IBM -0.04%), and Pfizer (PFE -1.04%). Here's why these stocks can help you build your retirement wealth.
Cisco Systems ranks as one of the world's top leaders in information technology and networking. The company sells a wide range of products and services needed by organizations to manage their computer network architecture, from routers and switches to cloud hosting and security solutions.
While Cisco continues to be a major player in networking hardware, the company is actively building a greater presence in the software market. In 2017 alone, Cisco has spent more than $4.4 billion acquiring four smaller companies to beef up its software offerings.
Although Cisco's growth has been sluggish over the past five years, Wall Street analysts think the company will enjoy double-digit percentage earnings growth in the next few years. Cisco's transformation to focus more on software should help make this growth attainable.
Cisco's dividend currently yields 3.67%. The company initiated its dividend program in 2011 and has increased the dividend each year since then. With a payout ratio of only 54% and good prospects for earnings growth, Cisco seems likely to keep those dividend hikes coming well into the future.
International Business Machines
IBM has been a pioneer in the development of technology since 1911, when it sold tabulating machines. The company played pivotal roles in the introduction of mainframes, personal computers, information technology services, and enterprise software.
The IBM of today is a leader in developing cloud platforms on which companies operate their businesses and cognitive solutions that use artificial intelligence. IBM's Watson was first introduced in 2011 (winning on the game show Jeopardy! that year) and has significant potential to help revolutionize how healthcare is provided.
It hasn't been a pretty picture for IBM in recent years. The company's earnings have declined. However, IBM's future appears to be at least a little brighter, with analysts projecting low-single-digit percentage earnings growth for the company. In addition, the lackluster performance from the past few years has made IBM stock quite cheap: Shares trade at only 11 times expected earnings.
While IBM works to restore growth, investors will be rewarded by a solid dividend with a current yield of 3.86%. The company has increased its dividend for the last 17 consecutive years. That streak should continue, with IBM currently using 46% of earnings to fund the dividend program.
Pfizer is one of the world's largest pharmaceutical companies and has launched many innovative drugs through the years. The company's current products include cholesterol drug Lipitor, pneumococcal vaccine Prevnar 13, rheumatoid arthritis drug Xeljanz, and anticoagulant Eliquis.
Over the past couple of years, Pfizer has made several key acquisitions that have changed the dynamics for the company. In 2015, Pfizer bought Hospira, picking up the company's biosimilars and sterile injectables. Last year, Pfizer acquired Anacor Pharmaceuticals and Medivation. The former deal brought promising atopic dermatitis drug Eucrisa into Pfizer's lineup, while the latter allowed Pfizer to gain prostate cancer drug Xtandi.
Although Pfizer's earnings growth over the last few years was hurt by loss of exclusivity for several top drugs, the company appears to be poised for stronger growth in the future. Sales are growing quickly for cancer drug Ibrance. In addition, Pfizer claims a robust pipeline with multiple potential blockbuster candidates.
Pfizer also offers one of the best dividends in healthcare, with a yield of 3.88%. Its dividend payout ratio of 102% might be concerning at first glance, but Pfizer's strong cash flow and earnings growth potential should allow the company to maintain its dividend at least at the current level.