Someone's investment goals in retirement are often different from those in his or her early years of investing. You don't want to bet on the moonshot in retirement, but would want to protect the money earned over decades of investing.
We asked three of our investors for some safe, high-yield investments for retirees and they suggested that China Mobile Ltd. (CHL +0.00%), CareTrust REIT Inc. (CTRE 1.65%), and 8point3 Energy Partners LP (CAFD +0.00%) have the qualities investors should be looking for.
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China's biggest telecom company
Leo Sun (China Mobile): China Mobile is the biggest telecom company in China with a wireless customer base of 873 million. Only 617 million of those customers are on 4G plans, so there's still room for the telco to boost its average revenue per customer with upgrades. The company also serves 99 million customers with its smaller wireline business, which helps it expand into rural areas with bundled packages.
Like many other mature telcos, China Mobile offers slow but steady growth. Its total wireless customer base grew 4% annually in August, with its number of 4G customers jumping 32%. Analysts expect its revenue and earnings to both rise 5% this year.
The company and its two smaller peers, China Unicom (CHU +0.00%) and China Telecom (CHA +0.00%), are state-backed enterprises, so the Chinese government periodically monitors them and rotates their management to ensure that one company doesn't overwhelm the other two. This ultimately throttles China Mobile's growth, but it also casts a wide safety net under it and prevents margin-crushing price wars, making it an ideal long-term investment for retirees.
China Mobile pays semiannual dividends, which are declared every half-year based on its earnings growth. This makes it less predictable than western telcos, but its yield has generally remained between 3% to 5% over the past five years. Its current yield of 3.6% is supported by a low payout ratio of 44%. The stock is also cheap at 12 times earnings, which is much lower than the industry average of 22 for telecom companies.
Retirees are driving the growth prospects for this company
Jason Hall (CareTrust REIT): Between 2010 and 2030, the number of American senior citizens is on track to double, from 39 million to over 80 million. This big growth is the result of America's baby boomers aging, at a rate of about 3 million turning 65 every year over the next 13 years. Furthermore, baby boomers are on track to outlive their parents.
The catch? The U.S. doesn't have anywhere close to enough senior housing and healthcare facilities to accommodate and care for them as they age. CareTrust REIT, which owns rehab, senior housing (such as assisted living and independent living), and skilled nursing facilities, is one of the companies set to see enormous growth as a result.
Since 2014, CareTrust has acquired over 100 properties, more than doubling in size and growing funds from operations by 186%. Since paying its first regular dividend in December 2014, the company has increased its payout three times. The dividend is up almost 50% in less than three years.
With the strong cash flows, a dividend yielding almost 4% at recent prices, and decades of growth ahead of it, CareTrust REIT is a wonderful combination of both high-yield income and long-term growth, which retirees -- many of whom will live well into their 80s -- should be investing for, too.
A safe, high-yield energy stock
Travis Hoium (8point3 Energy Partners): Retirees should be looking for dividends that come from businesses with predictable long-term cash flows. 8point3 Energy Partners is a yieldco that owns solar projects with long-term contracts to sell electricity to utilities, on average for 19.5 years into the future. The off-takers are mostly highly rated utilities, which have been approved by regulators to make such purchases.
The cash flow generated from electricity sales are used to pay operating expenses and debt while the excess is returned to shareholders in the form of a dividend. Currently, the dividend is a 7.2% yield from the stock price. As a bonus, 8point3 Energy Partners' dividends for at least the next seven years will be a "return of capital," meaning it's tax-free to investors.
Sponsors First Solar and SunPower are potentially looking to sell 8point3 Energy Partners, but that isn't a bad thing for long-term investors. If the entire company is bought out, investors could get a premium, but a new sponsor that wants to grow the company could give the market more confidence, allowing the yieldco to acquire projects that add to the dividend long term. A high yield backed by long-term contracts and the potential for a buyout or more dividend growth in the future make a great stock for retirees, especially in today's challenging energy market.
