Retirement means you no longer need to work to make a living. But that doesn't mean your money needs to stop working for you. For those who know where to look, the stock market can be fantastic tool to make the most of your money after you retire.
So we asked three top Motley Fool investors to each pick a stock that they believe retirees would be wise to consider. Read on to learn why they chose Tanger Factory Outlet Centers (SKT +0.47%), General Motors (GM 0.40%), and AbbVie (ABBV 2.10%).
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Investing in a resilient retail niche
Steve Symington (Tanger Factory Outlet Centers): 2017 hasn't been kind to Tanger Factory Outlet Centers stock. Shares of the outlet-mall real estate investment trust (REIT) have fallen more than 30% year to date -- a streak extended earlier this month by the market's negative reaction to Tanger's reasonably solid second-quarter report.
To be fair, Tanger did reduce its forward guidance to call for full-year diluted net income per share of $0.70 to $0.75, down from $1.04 to $1.09 previously, and for funds from operations per share -- which essentailly represents Tanger's cash flow from operations -- in the range of $2.04 to $2.09, down from $2.40 to $2.45. But the company also explained that those changes were primarily the result of a new $300 million public bond offering during the quarter, which Tanger used to restructure some of its debt on more attractive terms. Adjusted for the effects of that offering, Tanger's financial guidance would have remained the same.
In the meantime, Tanger has managed to increase base rents an average of 10.1% year over year on lease renewals through the first half of 2017, simultaneously maintained a healthy portfolio occupancy rate of 96.1%, and increased same-center net operating income 2.2%, excluding centers undergoing major remerchandising projects, marking the latter metric's 55th consecutive quarter of growth. CEO Steven Tanger also pointed out that despite the market's concerns over the current challenging state of the retail industry, the outlet channel is particularly resilient and typically accounts for a "disproportionately small number" of stores targeted for closure by struggling retailers.
So with Tanger stock under pressure right now, and given its healthy dividend yielding 5.7% annually at today's prices, I think it's a great portfolio candidate for retirees today.
In case you already own Ford...
Rich Smith (General Motors): Last week I made a pretty obvious call, arguing that bargain-priced Ford (F 0.90%) is one stock every retiree should consider buying. Today I'm going to make an equally obvious call -- the other side of the coin, pretty much -- and say that Ford rival General Motors (GM 0.40%) is another top stock for retirees to consider.
You may wonder whether buying General Motors stock is a good idea, of course. After all, last month GM's total car and truck sales were down 15.4% -- twice as bad as the sales decline that Ford suffered. Last quarter, GM's sales were down 1%, and its profit plunged 42% in comparison with the year-ago quarter.
None of that sounds like good news.
But here's where silver lining comes in. Bad as GM's news was last quarter, it was still better than analysts expected. In fact, despite the sales and profits declines, GM beat analyst estimates by 12% last quarter, just as it's beaten analyst estimates in each of the past four quarters. These same analysts expect GM stock to grow earnings at a robust 13% pace. What might help GM to rebound? Well, the cyclical nature of the automotive industry, for one thing. If sales are currently cycling down, that just means that at some point, they'll be due to cycle right back up again. In addition, GM has some innovative products in its pocket to help drive earnings growth -- the new GM Bolt electric car, for example, which looks likely to meet or beat Tesla's new Model 3 in range, and at a comparable price.
While GM's earnings will almost certainly be down this year, Wall Street is predicting that products such as the Bolt will help GM's profits to rebound as early as 2018, and if those predictions come to pass, then GM stock at 5.4 times trailing earnings could be a real bargain.
Patient investors -- those willing to ride out the tide of negative sentiment surrounding GM stock and simply cash their 4.4% dividend checks while awaiting the return of earnings growth -- should be amply rewarded.
A big dividend from big drug sales
Cory Renauer (AbbVie Inc.): Retirees looking for a healthy dividend should consider this big pharma stock and the 3.6% yield it offers at recent prices. This big biotech has steadily raised its quarterly payout from $0.40 per share to $0.64 per share since making its stock market debut in 2013.
The healthcare giant that AbbVie spun off from, Abbott, is a dividend-paying legend, with 45 consecutive annual raises under its belt, and the maker of Humira looks well positioned to follow in its parent's footsteps for the foreseeable future. The company used just 44% of profits generated over the past year to make the last four payments, and those profits are on the rise thanks to rising sales of two big drugs.
AbbVie's flagship Humira has been the world's top-selling drug for years, and global sales of the anti-inflammatory are still growing by double digits despite its age. The company thinks its stack of patents can fend off the competition in the U.S. through 2022, giving the rookies in its lineup more time to develop.
Those rookies include Imbruvica, which AbbVie markets in partnership with Johnson & Johnson. AbbVie's share of this blood cancer drug's sales in the first half of the year jumped 43.6% over the same period last year, to about $1.2 billion.
AbbVie also sports one of the best drug pipelines in the industry. Three big standouts -- upadacitinib, elagolix, and Rova-T -- could become multibillion-dollar blockbusters if clinical trial data expected in the quarters ahead continues to impress.
