Investment goals can change over the course of a lifetime. In your 20s, you may look for growth stocks to power your portfolio, while later in life, you are likely to find stability and dividends are more your focus.
We asked three of our investors for their favorite rock-solid dividend stocks for your golden years, and according to them, Johnson & Johnson (JNJ 1.49%), Wal-Mart Stores Inc (WMT 0.46%), and 3M Co (MMM 0.86%) have the qualities older investors should be looking for.
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A bulletproof healthcare giant
Jeremy Bowman (Johnson & Johnson): If you're looking for a top-notch retirement stock, Johnson & Johnson (JNJ 1.49%) has pretty much everything you could ask for. The healthcare conglomerate has been around for more than 130 years and is a Dividend Aristocrat, having increased its dividend payout for 55 years. Only a handful of companies can make that claim.
J&J is also only one of two companies, along with Microsoft, to hold an AAA credit rating from Standard & Poor's. That's a testament to the strength of its balance sheet and its history.
While the Tylenol-maker has a pharmaceutical division, its diversification makes it less risky than pure-play pharma companies, which often rely on one or two blockbuster drugs and can see their profits fall when they go over patent cliffs.
The company's three principal business segments are pharmaceuticals, medical devices, and consumer products, and with growth in the healthcare industry expected to be strong, Johnson & Johnson should continue to benefit.
The company offers a solid yield of 2.5% and trades at a reasonable P/E of 23. Being a dividend payer in the inelastic healthcare industry, it should protect investors in a market downturn. Recent dividend increases have ranged from 5-7%, and the dividend payout has doubled in the past decade. With a payout ratio of 55%, there's plenty of room to keep up those increases even if profit growth lags.
With an impeccable track record and promising growth in healthcare to come, there's no reason why Johnson & Johnson shouldn't be part of your dividend retirement portfolio.
Big is beautiful
Demitri Kalogeropoulos (Wal-Mart): You're already retired, and so your portfolio is likely set up to prioritize income that increases -- or at least doesn't decrease -- under a wide range of market conditions. If rock-solid dependability is your goal, consider investing in Wal-Mart. The world's biggest retailer sports a 2.6% yield today and hasn't missed an annual payout increase in 44 years.
Its latest operating results include steady, if unspectacular, gains. Sales growth was nearly 2% in the fiscal second quarter thanks to a healthy mix of rising customer traffic and higher spending per visit. At the same time, Wal-Mart's aggressive investments in the e-commerce channel are extending its market dominance into that realm. Digital sales spiked 60% and were responsible for a growing proportion of the retailer's comps growth.
Wal-Mart is paying a price for its recent growth in the form of increased spending in areas like wages and e-commerce infrastructure. As a result, profits are falling this year and could be weak into 2018. However, the $6 billion of net income it has generated over the last six months was still more than twice its dividend commitment. Thus, this market-leading retailer has plenty of room for additional increases in coming years, even if its industry takes another surprising turn lower.
A company with a century of dividends
Travis Hoium (3M): In your golden years, investing isn't about finding the next hot tech stock or betting on a high-growth market -- it's about stability. And no company is more stable than 3M.
The company makes everything from office products to films that go in high-end smartphones. It's one of the most diverse companies in the world, with thousands of products and manufacturing plants. 3M isn't a big growth company, essentially stagnating over the last five years, but it's been able to grow earnings and free cash flow over that period of time.
MMM Revenue (TTM) data by YCharts
Stability and cash flow have driven 3M's dividend, which currently yields 2.2%. The dividend has been paid for 100 straight years, increasing for 59 straight years, among the longest streaks on the market. With a business that's diverse and focused on cash generation, this is a great company to own for your golden years.
