Though you may have hung up your work gloves and coat for good, it's never a wise idea to retire from investing. You see, we're living longer than ever, which means we need to ensure that we don't outlive our nest eggs. And the best way to do that is to buy high-quality stocks and hang onto them for extended periods of time.
What top stocks should retirees consider buying? That's a question we recently posed to three of our Foolish investors. Their answers? Take a closer look at international tobacco company Philip Morris International (NYSE:PM), cruise line operator Carnival Corporation (NYSE:CCL), and liquor giant Diageo plc (NYSE:DEO).
Your ticket to a "smoking" good dividend
Sean Williams (Philip Morris International): Retirees typically want three things when looking for stocks they can sock away and not worry about: income, capital preservation, and low volatility. You can get all three of those with tobacco-giant Philip Morris International.
The obvious elephant in the room that should be addressed is the crackdown on tobacco by certain global governments. In the U.S., for example, adult smoking rates have plunged from more than 40% in the mid-1960s to just 15.1% as of 2015, according to the Centers for Disease Control and Prevention. While that's a concern for domestic tobacco companies, it isn't for Philip Morris, which operates in more than 180 markets around the world (the U.S. not being one of them).
Even when the company operates in a country that's become tougher on tobacco (e.g., Australia), it has the option of refocusing its efforts on high-growth countries with burgeoning middle classes that are likely to use tobacco products, such as China or India. Philip Morris' global operating diversity is, perhaps, its greatest strength.
If there's a close second in there, it's that the company has six of the world's 15 leading tobacco brands in its portfolio, including Marlboro, which ranks first worldwide. Having top-tier brands gives Philip Morris strong pricing power, and it also allows for word-of-mouth advertising, which keeps it firmly at the top of the pack among international tobacco producers.
In addition to price increases, Philip Morris is counting on innovative alternatives to smoking to drive its long-term growth. For instance, the company's heated tobacco products heat rather than burn tobacco to generate an aerosol that contains nicotine. Through the first-half of 2017, these heated tobacco products comprised less than 3% of total shipment volume for the company, but year-over-year growth in this segment clocked in at 570%!
The icing on the cake for Philip Morris is that it recently announced an increase to its annual dividend of 2.9%, to $4.28 annually. This works out to a superior yield of 3.7%. Retirees looking for income, stability, and capital security should really give Philip Morris International a closer look.
Cruising for fun and profits
Rich Smith (Carnival Corporation): Investing master Peter Lynch put it best (and simplest): "Buy what you know." That's an investing maxim I try to live by, and it's one reason I think every retiree should consider buying shares in Carnival Corporation.
Easily the biggest cruise-line company in the world, Carnival Corporation controls three times the market share of its nearest rival, Royal Caribbean. If you're planning to take some cruises in retirement, chances are good that more than a few of them will end up being aboard Carnival's cruisers -- giving you a good chance to "get to know" Carnival cruise.
Why would you want to buy Carnival Corporation stock? Well, there's the price to start with. With a P/E ratio of just 17.5, Carnival stock sells for a 30% discount to the average price of stocks on the S&P 500 -- where P/Es average just under 25 times. Carnival stock also pays a nice dividend of more than 2.4%, a never-ending stream of income that you can use to pay for a few of those cruises you plan to take. (In addition 2.4% is about 18.5% more than the average S&P 500 dividend payer.
Best of all, now is a great time to buy into Carnival Corporation stock. Since Hurricane Irma tore through the Caribbean, Carnival stock is down more than 5% on worries vacationers will avoid Caribbean cruises until damage has been repaired in popular ports of call such as the Virgin Islands and St. Martin. Eventually, though, that damage will be repaired, the tourists and the profits will return, and Carnival stock should bounce back -- just in time to help out your retirement portfolio.
Purveyor of spirits with world-class beverage brands
Sean O'Reilly (Diageo plc): Retirement is the time to kick back, spend time with loved ones, and shift to a more conservative investment strategy. Unfortunately, this is easier said than done. Bonds currently yield a pittance, the stock market is at all-time highs, and disruptors like Amazon are upending entire industries -- which brings me to my top pick for retirees to consider today: Diageo plc.
While some may not have heard of Diageo, they'll no doubt have heard of more than a few of Diageo's top brands, which include: Johnnie Walker, Smirnoff, Baileys, Captain Morgan, Tanqueray, and Guinness. The company boasts operations in over 180 countries and employs well over 30,000 employees. Results for the fiscal year ended June 30, 2017 featured net sales up 4.3%, fueled by sales-volume increases of 1.1%. Diageo's business is so strong that it was able to generate free cash flow (FCF) of 2.7 billion British pounds in FY 2017, up 566 million British pounds from 2016.
Looking ahead, Diageo continues to add to its formidable portfolio of alcoholic-beverage brands. Diageo purchased Casamigos, a premium tequila brand made famous by its founder, George Clooney, for $1 billion. Shares currently yield 2.45% and, with earnings per share expected to grow approximately 11.5% through FY 2022 according to analysts polled by S&P Global Market Intelligence, Diageo is a rock-solid stock that retirees should look at closely.
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 Amazon. The Motley Fool recommends Carnival and Diageo. The Motley Fool has a disclosure policy.