Building a strong base of dependable dividend-paying stocks can drastically cut down on financial sources of stress in your nonworking years and help you get the most out of your retirement.
With that goal in mind, we asked a panel of Motley Fool investors to profile a stock that's an ideal fit for retirees' portfolios. Read on to see why they identified Target (NYSE:TGT), The Travelers Companies (NYSE:TRV), and PepsiCo (NYSE:PEP) as some of the best low-risk, dividend-paying companies to invest in today.
A stock on target to turn around
Rich Duprey (Target): Earlier this year Target alarmed investors with a $7 billion commitment to remake its stores, invest in e-commerce, and become more competitive on price. Not only is it going to remodel its existing "old, tired" stores, but it will continue to build out new, smaller-footprint stores, even as rivals are closing down many of their own.
In its commitment to turning around its declining performance, Target will likely hurt itself, specifically with its move to everyday low pricing instead of holding, um, targeted sales. Yet early indications suggest the retailer's initiative gaining a little traction.
It might sound like a risky undertaking, but a well-executed push for a better customer experience could help the retailer succeed. Still, the market is exhibiting reservations about the new pricing policy, which the company announced in a blog post earlier this week.
No doubt price-cutting was a plan that built on an earlier promise, but after Amazon.com (NASDAQ:AMZN) bought Whole Foods Market and immediately cut prices on products the organic grocery store sold on its website, it likely became an imperative that Target respond. The strategy carries risk as it would pit the mass merchandiser directly against Wal-Mart, in a domain at which the latter excels. On the one hand, the price-cutting initiative will pinch margins, but on the other it holds the potential to drive up volumes.
Target has been gradually making its shopping experience a better one, and that's paying off. Comparable sales, which had fallen for four straight quarters, rose 1.3% last quarter. A single period doesn't make a trend, but Target looks like it is fulfilling its promise, and trading at 12 times earnings and 13 times next year's estimates, but also for a fraction of its sales, makes Target's stock, which pays a dividend yielding 4.2%, a timely purchase.
Stack dividends with this snack and beverage giant
Keith Noonan (PepsiCo): PepsiCo has long been a favorite among income investors, and it continues to be a standout investment opportunity for low-risk, retirement-focused portfolios. With its leading snack and beverage operations and global reach, the company is well-diversified and positioned to continue growing earnings and providing reliable income-generation for years to come.
Despite recent slowdown in sales volume, Pepsi is delivering solid profit growth and still has considerable room for earnings expansion. The company's year-to-date earnings per share are up 10% year over year on a constant currency basis. What's more, international expansion initiatives, pricing power, and efforts to tailor its product lineup to consumer tastes will likely continue delivering results over the long term. The company is also becoming more efficient, with over $1 billion in cost savings achieved in the last fiscal year alone and opportunities to make ongoing improvements as it uses analytics to improve its supply chain and continues to benefit from automation.
As far as the returned income component goes, PepsiCo packs a 2.8% yield and has a history of delivering payout growth that few companies can match. The company has raised its dividend annually for 45 years running, and a 62% payout ratio and earnings momentum put it on track to continue extending that impressive streak.
As a great company backed by a great dividend, PepsiCo is a smart choice for almost any retirement portfolio.
Here comes the sun
Dan Caplinger (Travelers): The insurance industry can be a tough one for investors to navigate, and many things that sound like they're bad news in the short run can work out well in the long run. For Travelers, now might seem like exactly the wrong time to buy, with the auto and home insurance provider having suffered extensive damages from hurricanes Harvey and Irma pummeling either end of the Gulf Coast within the past month. Yet after a few years, Travelers could end up ahead despite the immediate losses.
Travelers will inevitably see claims surge as a result of the storms, and its short-term results will reflect higher claims. What those claims will do is support Travelers in its ability to raise premiums going forward. Past hurricanes have also boosted demand for more extensive insurance coverage, as homeowners see the potential damage that such storms can cause. After several years of relatively mild hurricane seasons, that reminder is an important one to help Travelers in its efforts to keep its customer base engaged.
Losses are a part of life for insurance companies, yet the stocks in the industry still react negatively to catastrophic events when they happen. Travelers has the financial strength to weather the storm, and deliver solid dividends and total returns for shareholders.
Dan Caplinger has no position in any of the stocks mentioned. Keith Noonan has no position in any of the stocks mentioned. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends PepsiCo. The Motley Fool has a disclosure policy.