Retirement saving doesn't end when you retire. People are living longer than ever, so it's important to stretch that nest egg to cover those extra years. High-quality stocks can help you do exactly that, but it's not always easy to pick out the best tickers for the job.
So, we asked a panel of your fellow investors at The Motley Fool to share some of their top ideas on this tricky topic. Read on to see why they would put Enbridge (NYSE:ENB), American Tower (NYSE:AMT), and NextEra Energy (NYSE:NEE) in a fully mature retirement portfolio.
Lower risk with visible growth
Matt DiLallo (Enbridge): Canadian energy infrastructure behemoth Enbridge has several excellent qualities that make it a great option for retirees. Topping that list is its low-risk business model.
Because long-term commercial agreements underpin 96% of the company's cash flow, it generates very predictable results. It complements that stable cash flow with an investment-grade balance sheet, an improving leverage ratio, and a conservative dividend payout ratio of about 50% of its cash flow. Those factors not only increase the long-term sustainability of the company's generous 4% dividend, they also give it the financial strength to grow.
Speaking of growth, Enbridge currently has 31 billion Canadian dollars' ($24.5 billion) worth of secured expansion projects in execution. These projects provide a clear line of sight that it can grow its available cash flow from operations by 12% to 14% annually through 2019. Meanwhile, with a large supply of organic growth projects in development beyond its current slate, the company is confident that it can increase its dividend by 10% to 12% annually all the way through 2024 while maintaining a conservative 50% to 60% payout ratio and low leverage.
With a healthy current yield and robust growth in the forecast, Enbridge has the potential to provide investors with a growing income stream over the next several years. Given its lower risk nature, it's definitely a stock those in or near retirement will want to consider.
An electric utility like no other
Sean Williams (NextEra Energy): Retirees looking for a great stock in which to park their money would be wise to give electric utility NextEra Energy a closer look.
Electric utilities are already a commonly invested-in industry for retirees because electricity is a basic-need good. Basic-need goods and services can withstand the ups and downs that naturally occur within the economic cycle, providing a sense of stability and capital preservation for investors. It also doesn't hurt that electric utilities commonly provide a healthy dividend.
However, NextEra Energy isn't your typical utility company. It has a considerably larger focus on renewable sources of electricity generation than any other utility. While this has meant it has a higher level of debt than some of its peers, it also pushes NextEra's long-term costs down substantially lower than those of its peers, which will soon be transitioning to greener energy sources, too. In 2015, no company in the world generated more electricity from wind or solar than NextEra, and in 2016, 97% of its energy generation came from cleaner sources like natural gas (49%), nuclear power (26%), wind (20%), and solar (2%). This should lead to lower long-term costs, higher margins, and much happier customers who should see their utility costs rise at a slow pace.
NextEra Energy is predominantly a regulated utility as well. While this means NextEra Energy can't just pass along electricity price increases at will, it also virtually removes exposure to wholesale electricity pricing. In other words, NextEra's cash flow is highly predictable given its step-up pricing when it gets the OK from state energy commissions to boost its prices.
Lastly, NextEra Energy has grown its quarterly payout by nearly 49% over the trailing-5-year period. The current $3.93 paid out per share works out to a healthy yield of 2.7%, which is nicely above the average yield of the S&P 500.
If retirees really want to stand out, they should consider buying this unique electric utility.
The dividend gift that keeps on giving
Anders Bylund (American Tower): Investing in your golden years is all about high-quality dividends and ironclad business models. Ideally, you want bulletproof stocks that are sure to stick around for decades to come, paired with a generous dividend yield and a commitment to regular payout increases.
Cell tower operator American Tower delivers all of this, plus a jolt of high-octane market performance to boot.
Over the last five years, the REIT's share prices nearly doubled while its quarterly dividend payouts almost tripled:
The current dividend yield looks a bit light at 1.9%, but long-term investors shouldn't worry about that detail. If you had built an American Tower position five years ago, you'd be enjoying an effective yield of 3.6% today -- along with that 90% share price surge you see in the chart above.
What's more, this company is poised to stick around for the very long haul. In its core business of leasing out radio tower space to telecoms, radio stations, and others in need of a long-range wireless infrastructure, American Tower signs multiyear contracts with built-in service price escalations as the years roll by. Wireless networks aren't going away anytime soon, which means American Tower's services will stay in high demand for the foreseeable future.
This is a cash machine with decades of undisputed staying power and organized in a dividend-friendly REIT structure.
In my view, that's a perfect fit for an income-generating retirement portfolio. American Tower's dividend is going places, and the only direction is up.
Anders Bylund owns shares of American Tower. Matt DiLallo owns shares of American Tower. Matt DiLallo has the following options: long January 2018 $80 calls on American Tower and short October 2017 $120 calls on American Tower. Sean Williams has no position in any stocks mentioned. The Motley Fool owns shares of and recommends American Tower and Enbridge. The Motley Fool has the following options: short October 2017 $120 calls on American Tower and long January 2019 $80 calls on American Tower. The Motley Fool has a disclosure policy.