Don't look now, but Americans are living an average of nine years longer now than they were in 1960. This means sitting on your money during retirement may not work. Instead, you'll need to remain active during your golden years to grow your nest egg.
With that in mind, you might be wondering what stocks retirees should consider buying. That's a question we posed to three of our Foolish investors, who subsequently came up with Kinder Morgan (NYSE:KMI), Nucor (NYSE:NUE), and Anheuser-Busch InBev (NYSE:BUD).
This'll fuel your portfolio for decades to come
Sean Williams (Kinder Morgan): Since retirees are often looking for stability and income, my suggestion would be to consider the largest midstream operator in the U.S., Kinder Morgan.
The obvious advantage with a company like Kinder Morgan is that demand for natural gas and oil are likely to head higher over the long run. Kinder Morgan, which specializes in natural gas transports, is poised to benefit from the massive shale deposits discovered in the U.S. over the past decade. If President Trump does indeed aim to ease restrictions on the energy sector, it'll likely encourage drillers to produce, leading to long-term transport and terminaling opportunities.
An often overlooked fact about the company is that it typically works with fixed-fee long-term contracts. The transport deals Kinder Morgan signs with drillers last for long periods of time, and they provide predictable cash flow because the company is getting paid a fixed fee as opposed to being exposed to wholesale commodity fluctuations.
But what retirees are really going to like are Kinder Morgan's shareholder return plans moving forward. Following the sale of a 50% stake in the company's Southern Natural Gas system to Southern Company , and the completion of expansion projects on the Elba Express and Tennessee Gas pipelines , the company has pared down debt and looks ready to see a serious expansion in its cash flow throughout the remainder of the decade.
Management recently announced the expectation that it'll raise its dividend by 60% in 2018 to $0.80 a share, and then 25% annually until reaching $1.25 per share in 2020. Based on its current share price, this would work out to a better than 6% yield. And that's not all. The company is also devoting up to $2 billion to buy back its stock, which does look exceptionally attractive at less than 10 times its cash flow per share in 2018.
With fossil fuels being a basic-need good in America, Kinder Morgan looks like the perfect stock for retirees to consider adding to their portfolios.
Reinforce your portfolio with steel
Rich Smith: (Nucor): If I was nearing retirement (and I am) I think I'd consider buying stock in a top steelmaker like Nucor.
Remember steel stocks? They went on a romp after President Trump was elected late last year, as investors piled into an investment they hoped would pay off big when the President's "trillion dollar infrastructure plan" got passed by Congress. Problem was, nearly a year into that presidency, we still don't have an infrastructure plan -- much less $1 trillion in taxpayer money being spent on it.
But here's the thing: There's still a desire by the Administration to pass an infrastructure plan, and according to a recent poll conducted by engineering consulting firm HNTB Corp, widespread support among taxpayers to pay for it. That bodes well for steel stocks in general, and for a top steelmaker like Nucor in particular.
What makes Nucor a "top" stock that retirees should consider buying before all the rest? Compared to rivals like AK Steel and U.S. Steel, Nucor boasts far greater profit margins -- as in, 6.4% versus less than 2% for AK Steel, and less than 1% for U.S. Steel. And yet, with a P/E ratio of less than 15, Nucor stock costs far less than U.S. Steel (and a P/E of nearly 160) and not much more than AK (P/E -- 14.6).
Plus -- and this could be key for retirees on a fixed income-- Nucor pays one of the best dividends in the steel industry, with a yield of 2.8%. That's two percentage points more than U.S. Steel pays, and infinitely better than AK, which pays no dividend at all.
This Bud, and stock, is for you
Sean O'Reilly (AB InBev): Five years after Anheuser-Busch merged with European brewer InBev, AB InBev set its sights on becoming the world's undeniable dominant brewer. As a continuation of this strategy, and after months of bargaining and accommodating regulators in 30 nations, it completed its acquisition of SABMiller in October 2016. Sadly, the increased exposure to emerging markets that was a major rationale for the merger appears to have had a negative impact on the company's numbers. That is, at least in the short term. As we saw in its second quarter, BUD has begun to hit its growth stride again. For the quarter, organic revenue growth came in at a strong 5%, and EBITDA surged 11.8% to $5.4 billion. Also of note, management has raised its annual cost-savings estimates from its merger with SAB Miller from $2.8 billion from $2.45 billion.
As I have argued before, AB InBev stands to benefit from an entire century of emerging market growth – particularly increased beer consumption. AB InBev has dominant market share in practically all of Africa, Brazil, Argentina, Mexico, and numerous other markets. Any stock owned by retirees needs to have an impregnable business that is practically guaranteed to grow for a long time. With over 200 beer brands that dominate the world, and sporting a dividend yield of 3.3%, AB InBev fits the bill.
Rich Smith has no position in any of the stocks mentioned. Sean O'Reilly has no position in any of the stocks mentioned. Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV and Kinder Morgan. The Motley Fool recommends Nucor. The Motley Fool has a disclosure policy.