Many savvy investors know they'll need steady income-generating stocks in retirement, but finding companies that can do that -- and that are priced under their potential -- is not always easy.
That's why three Motley Fool writers have put together a short list of value stocks that could end up being perfect investments for retirement: Pfizer (NYSE:PFE), Dominion Energy (NYSE:D), and Verizon Communications (NYSE:VZ). These companies may need some sprucing up right now, but they could easily reclaim their shine in the coming years.
A high-growth utility to consider
Neha Chamaria (Dominion Energy): Utilities have a long-standing relationship with dividends and usually make for great retirement stocks thanks to the defensive nature of their business, which is why Dominion Energy has caught my attention today.
Dominion's recently released third-quarter numbers may not have been too encouraging, but the company's growth plans should fuel earnings and dividends. 2017 is turning out to be a transformational year for the electricity and natural gas utility, with management confirming that three of its biggest projects under construction are on track. One of them is its mega Cove Point Liquefaction facility, which is set to go on line this year and will serve as a key natural gas export point to cater to high-profile regions like the Asia-Pacific.
In another exciting development, tech giant Facebook selected Dominion last month to power its 1 million-square-foot data center near Richmond, Virginia, with solar. Dominion plans to add at least 5,200 megawatts of solar capacity by 2042.
Dominion now expects to grow its earnings per share (EPS) at a compounded average rate of 6%-8% between 2017 and 2020 and "at least 5%" beyond 2020. Even better, management pegs its annual dividend growth at 10% through 2020.
The company has a strong dividend history, and its growth plans further strengthen its investment thesis. When you combine management's financial goals with the stock's current dividend yield of 3.8% and analyst estimates of 12% growth in EPS next year, Dominion looks like a great bet for retirees even at 20 times forward earnings and 12 times price to cash flow.
Stability and dependability
George Budwell (Pfizer): Pfizer is consistently at the top of the list when it comes to annual pharma sales, despite the fact that the company has had a number of major drugs like Celebrex lose market exclusivity in the past few years. That fact is a testament to its ability to churn out novel new medicines in a timely fashion that have helped to stabilize its top line during this turbulent period. In short, Pfizer's vast clinical pipeline offers a tremendous amount of deep value for investors.
Even though Pfizer is staring down two additional patent losses for Viagra and its top-selling pain medication Lyrica in the near term, for instance, its enormous clinical pipeline should be capable of producing enough new growth products to keep its top line moving northward in 2018 and beyond.
As a brief overview, Pfizer is expecting regulatory decisions for its Herceptin biosimilar, as well as its Type 2 diabetes treatment, ertugliflozin, soon. Both of these drug candidates could rake in huge sales figures based on the enormous sizes of their respective markets.
Additionally, the drugmaker is poised to release several pivotal-stage readouts for its vast oncology pipeline that includes the PARP inhibitor talazoparib, the PD-L1 inhibitor Bavencio, and the ALK inhibitor lorlatinib, all within the next six months. Further down the line, Pfizer is also making steady progress with its high-value oral JAK1 inhibitor in atopic dermatitis, and a new pneumococcal vaccine candidate that could be one of the company's next blockbusters.
The long and short of it is that Pfizer is one of the few pharma companies with the ability to move past its patent cliff woes to deliver steady levels of growth for investors. And that's why retirees should feel comfortable owning this top pharmaceutical stock.
A strong telecom play
Chris Neiger (Verizon Communications): Sure, Verizon's stock has stumbled 17% so far this year, compared to the S&P 500's 15% gains. Some investors have been concerned that the nation's largest wireless carrier can no longer claim that its wireless network is vastly superior to its rivals' and that its revenue has stalled.
All this has weighed on the company's valuation, with shares now trading at just 11.4 times forward earnings. But retirees shouldn't let Verizon's current hiccups overshadow its potential.
Just last quarter, it started turning around some of its revenue problems, with service revenue increasing for the first time in 12 quarters, sequentially. Additionally, it netted 274,000 postpaid phone subscribers in the third quarter and 358,000 in the second quarter, proving that even rising competition isn't enough to wipe out Verizon's ability to grab new customers.
Verizon also has massive opportunities with its cable internet and content businesses, including AOL and its recent purchase of Yahoo!. Verizon may have been suffering from some missteps in wireless -- and gains from rivals at the same time -- but dismissing the carrier's nearly 36% market share in the wireless telecom space and opportunities in wired services is premature. Management said recently that it's cutting $10 billion from Verizon's budget between now and 2021, which should help the company refocus its investments in new growth areas.
Retirees should also know that Verizon has raised its dividend for 11 consecutive quarters and currently has a trailing dividend yield of just over 5%. Its share price and valuation may be down right now, but value investors should look to the company's recent wireless growth, cost-cutting measures, and overall position as a massive media company and know that it isn't anywhere near finished.
Chris Neiger has no position in any of the stocks mentioned. George Budwell owns shares of Pfizer. Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Verizon Communications. The Motley Fool recommends Dominion Resources. The Motley Fool has a disclosure policy.