Retired investors have somewhat different priorities than younger ones. Instead of focusing on growth, retirees' investments need to preserve their capital and also generate reliable income. However, that doesn't mean avoiding stocks -- in fact, there are some stocks that make excellent investments for retirees. Here's why our contributors think Welltower (NYSE:HCN), Nucor (NYSE:NUE), and AbbVie (NYSE:ABBV) are worth a look, even after retirement.
A 5% dividend yield and lots of room to grow
Matt Frankel (Welltower): Leading healthcare REIT Welltower is an excellent choice for retirees, with an excellent combination of reliable dividends and long-term growth potential. As far as income is concerned, Welltower yields 5.1% based on its current stock price, and is about to make its 186th consecutive quarterly dividend payment.
On the subject of growth, Welltower makes the bulk of its money from senior-housing properties, which make up about 70% of its property portfolio. Many of them are structured as operating partnerships, as opposed to standard lease deals, allowing Welltower to benefit from the income generated by the services its properties provide. In fact, about two-thirds of Welltower's total revenue comes from resident fees and services as of 2017's third quarter.
The ongoing retirement of baby boomers is expected to cause a spike in senior-housing demand over the next several decades. In fact, the 85-and-over population is expected to double in just 20 years, and by 2030, senior-housing demand will be growing by 96,000 units per year. This should especially benefit urban senior living, where Welltower concentrates its efforts, as most aging baby boomers in cities intend to stay.
This translates into an amazing long-tailed market opportunity, which should translate into a steadily growing income stream for investors, as well as significant upside potential, as the value of Welltower's property portfolio climbs over the years.
No rust growing on Nucor
Rich Smith (Nucor): Three months ago, I suggested retirees could "build their nest egg out of steel" by investing in steel minimill operator Nucor. Three months later, I'm of a mind to recommend Nucor again.
Why? As I hoped when I first recommended it, Nucor stock has "gone up" over the past three months. But the thing is, it's only gone up about $0.50 -- and I think there's a whole lot more growth to be had. Earnings may have slipped in Q3, but they were superb earlier in the year. As a result, Nucor stock at just 15.7 times earnings today is arguably cheaper than when I first mentioned it in August, when the price-to-earnings (P/E) ratio was 16.8.
Now as then, Wall Street is predicting that strong growth lies ahead for Nucor. Analysts, on average, estimate the company will grow its profits at better than 20% annually over the next five years -- well into many investors' retirement years. Combined with a still-respectable dividend yield of 2.5%, Nucor's total returns on its stock should be in the neighborhood of 23% annually -- more than enough to justify the stock's mid-teens P/E.
The big unknown with Nucor stock is when -- or if -- it will begin benefiting from President Trump's long-awaited trillion-dollar infrastructure plan. Presumably, that's next on the President's agenda following tax reform. If and when the spending to rebuild America's crumbling roads, bridges, airports (and so on) arrives, it could turbocharge Nucor's results. In the meantime, though, I think Nucor stock looks cheap enough to buy.
A blue-chip biotech
Keith Speights (AbbVie): Buying a biotech stock might not seem like a good idea for retirees, but I think there's one biotech that's a great choice -- AbbVie. This isn't your stereotypical biotech stock with super-high volatility, though.
Retirees will like AbbVie's dividend, which currently yields north of 3%. Probably even better than that attractive yield, though, is the company's track record of dividend hikes. Counting the years it was part of Abbott Labs (NYSE:ABT), AbbVie has raised its dividend for 45 years in a row. Since being spun off from Abbott in 2013, AbbVie's dividend has increased 77%.
What about growing your retirement nest egg? AbbVie is expected to increase earnings by 14% annually over the next few years. That kind of growth is definitely attainable, in my view, with continued momentum for the world's top-selling drug, Humira, and cancer drug Imbruvica, plus one of the best pipelines in the biopharmaceutical industry. Among the top candidates in that strong pipeline are several drugs with megablockbuster potential, including cancer drugs Rova-T and Venclexta.
As impressive as AbbVie's current product lineup and pipeline are, the biotech is likely to add even more drugs in the coming years. AbbVie CEO Richard Gonzalez recently stated that the company is interested in beefing up its portfolio through acquisitions and licensing deals, with a special focus in immunology and oncology. Further acquisitions could make this blue chip biotech even more attractive for retirees.
Keith Speights owns shares of AbbVie. Matthew Frankel has no position in any of the stocks mentioned. Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Nucor and Welltower. The Motley Fool has a disclosure policy.