Investing in stocks during retirement might sound risky at first. However, you can minimize that risk by focusing on the highest-quality stocks selling at a discount to their true long-term value.
Of course, finding those stocks is easier said than done. So we asked three top Motley Fool investors to each pick a value stock that they believe retirees can appreciate. Read on to learn why they chose Retail Opportunity Investments (ROIC +0.00%), Walt Disney Co. (DIS +1.25%), and Ford Motor (F 0.21%).
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This REIT won't be retiring anytime soon
Steve Symington (Retail Opportunity Investments): As a real estate investment trust (REIT), Retail Opportunity Investments is required to return at least 90% of its income to shareholders as dividend. With its current annual yield sitting at roughly 3.9%, it offers retired investors a predictable stream of income each quarter. But that's not the only thing that makes this company special.
Retail Opportunity Investments focuses on buying and revitalizing necessity-based retail properties in mid- to high-income areas. This means its properties are most often anchored by large grocery chains, ensuring a steady flow of traffic and stable tenants to keep rents growing and lease rates high. To be sure, as of last quarter the company was on track to post its third straight year of portfolio lease rates above 97%, even as same-space comparable base rents climbed 39.9% and 8.4% on new and renewed leases, respectively.
Investors can also expect the size of the company's portfolio to continue steadily growing, thanks to the deal-making savvy of CEO Stuart Tanz, who previously guided Pan Pacific Retail from its $146 million IPO in 1997 to its $4.1 billion acquisition by Kimco Realty nine years later. The company has already made $314 million in shopping-center acquisitions so far in 2017, bringing its total portfolio to over 10 million square feet of attractive retail real estate that should prove resilient even as online shopping becomes more prominent.
With shares currently trading at a reasonable 17 times this year's expected funds from operations, I think Retail Opportunity Investments is a compelling buy for retirees -- or any patient investor, for that matter -- looking for a steady, growing dividend.
A world-class brand
Daniel Miller (Walt Disney Co.): Finding a value stock safe for those in retirement isn't always an easy task, as many companies trade at a discount for a negative reason. Walt Disney Co. seems different, however, because of the company's long-term track record of dishing massive value to its shareholders and building one of the world's most recognized brands. And at a current forward price-to-earnings ratio of 15.7, per Morningstar.com earnings estimates, its shares can offer a valuable and relatively safe investment going forward.
One reason to believe Disney is a safer investment than it has been can be found with its recent announcement of a new Star Wars trilogy. The movie business can be hit or miss, but having a series of movies with proven and lucrative track records at the box office can help reduce the risk of developing large budget movies.
Disney is also taking steps to capitalize on its content through streaming services. Disney has plans for two streaming services: an ESPN multi-sport video service that will launch in 2018, as well as a Disney-branded streaming service that will launch in the back half of 2019. Disney CEO Bob Iger said the Disney-branded service will initially stream the latest Disney, Pixar, Marvel, and Star Wars feature films, and eventually it will produce four or five feature films a year exclusively for the service.
If you're looking for a valuable stock that's also proven to be stable over the long term, Disney offers investors an incredible company prepared to expand its business moving forward. With investments in its cruise ships, parks and resorts, movies, and streaming services, among others -- Disney remains a smart investment.
This value stock will get your motor running
Sean Williams (Ford Motor): I don't believe there's an income stock that screams "value" to retirees more than Ford. Shares of the Detroit automaker have been under pressure in recent quarters, with the assumption that the U.S. auto market is at or near a peak. With little in the way of near-term growth expected, Ford's stock and forward P/E have both fallen. The company is currently valued at less than eight times next year's profit projections and it sports a nearly 5% dividend yield.
So, why Ford? I believe the biggest catalyst can be found overseas, not domestically.
China is already the largest auto market in the world, but it looks to be just revving its engine, if you will. A growing middle class is craving luxury, meaning automakers like Ford are still scratching the surface when it comes to Chinese demand for automobiles. In particular, we're seeing a major surge in luxury vehicle demand, with Ford announcing that it sold 45,729 Lincoln-brand vehicles through October, an 85% year-to-date increase from the previous year. As a reminder, Lincoln is a higher-margin brand for Ford, so even if introductory-priced car sales slow, as we've witnessed through the first 10 months of 2017, Ford can still benefit from higher-margin sales.
Also, in spite of some near-term growth concerns in the U.S., retirees shouldn't have to worry, given the loyalty of consumers to the Ford brand. It has consistently found itself at or near the top of customer loyalty surveys, suggesting that its efforts to improve fuel efficiency, add luxuries to the cabin space, and keep its vehicles affordable for new buyers have been paying off.
With a yield that's two and a half times higher than the S&P 500 and a P/E that's less than half that of the broad-based index, Ford looks to be a name that value-seeking retirees can trust.
