Investors in their golden years should favor stocks that pay a strong dividend and have solid long-term growth potential. Here's a closer look at why Pfizer (PFE -0.19%), STORE Capital (STOR), and National Grid (NGG -0.03%) are a great fit for this group of shareholders.
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Past the Lipitor hump
When Pfizer's blockbuster cholesterol drug, Lipitor, lost its patent protection a few years back, the company had a big problem on its hands. Lipitor pulled in more than $13 billion in sales per year at its peak, so replacing that lost revenue stream was expected to be a monumental challenge.
Pfizer's pipeline and willingness to make acquisitions has helped fill in the gap. Fast-forward to today, and the company now boasts a slew of hit drugs that are transforming it into a growth company once again. Pfizer's new crop of winners includes Prevnar 13, Lyrica, Ibrance, Eliquis, Xeljanz, Xtandi, and more. When combined with the company's biosimilar potential, Wall Street appears to be convinced that it's on a path toward sustainable revenue and profit growth from here. In fact, analysts are currently projecting that Pfizer's bottom line will grow in excess of 5% annually over the next five years. That's not too shabby for a $200 billion company.
With Pfizer's growth engine finally working again, the company should easily be able to continue its long streak of rewarding shareholders with buybacks and regular dividend bumps. That's an attractive investing thesis for a company that offers up a dividend yield of 3.8% and is trading around 12 times next year's earnings estimates.
Buffett's favorite REIT
REITs, or real estate investment trusts, are a natural hunting ground for older investors, since they're known for paying out big dividend yields. One REIT that I think is a prime choice for conservative investors today is STORE Capital.
STORE stands for "single-tenant operational real estate." The company is focused on leasing its 1,750 properties to small- and medium-sized retail businesses that lack a credit rating.
This might sound like a crazy business model, but STORE isn't as risky as you might assume. That's because the company is extremely choosy with its terms and tenant selection criteria.
Here's a review of some of the ways STORE protects itself:
- Tenants sign triple-net leases, which means they're responsible for all variable costs related to the building, including maintenance, taxes, insurance, and upkeep.
- Leases are long-term in nature -- most start out at 15 years or more.
- Most tenants are required to file quarterly financial reports with STORE. That allows the company to constantly monitor how its customers are doing so they can keep ahead of any potential trouble.
- The majority of STORE's customers are in service businesses that aren't threatened by e-commerce -- think health clubs, restaurants, movie theaters, and auto repair.
Given all of that, perhaps you'll understand why this company's occupancy rate is currently above 99% and it recently attracted a big investment from Warren Buffett. Add in a 5% dividend yield, and STORE Capital should appeal to conservative investors, too.
A gem from the utility sector
Utilities have long been viewed as a safe haven for investors, which makes sense given their monopoly-like characteristics and recession-proof business models. Those are big reasons I think investors should warm up to National Grid.
National Grid is a utility that focuses primarily on power transmission. The company owns electricity and gas assets in the U.S. and U.K., where it acts as an intermediary between power producers and consumers. That means the company is largely protected from big swings in energy commodity prices, since it isn't generating the power itself. It also means the company is less prone to regulatory scrutiny. These reasons make National Grid's business as rock solid as they come, which is why I hold this company in such high esteem.
Investors should be able to count on mid-single-digit earnings growth over the long term as the company pushes through rate increases and steadily grows its asset base. That should allow the company's dividend to steadily tick higher year after year, which is an appealing proposition for a company that currently yields 4.6%. That makes National Grid a great stock for investors who want predictable returns.
