Your investment portfolio becomes more important to your financial picture as you approach retirement. The income and capital gains from those stocks will support your spending, after all, and those returns ideally need to stay relatively stable even through market swings.
Below, three Motley Fool investors highlight a few stocks that have what it takes to deliver on those demanding goals. Read on to see why AbbVie (ABBV -0.30%), CareTrust (CTRE 0.59%), and Colgate Palmolive (CL 0.47%) could make great additions to your retirement portfolio today.
Get both growth and income from this top pharma stock
Keith Speights (AbbVie): If you're like many baby boomers, you need all the help you can get in meeting your financial goals. AbbVie is the kind of stock that can provide that help in a couple of ways.
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First, AbbVie is a great income stock. Its dividend currently yields more than 3%. AbbVie recently increased its dividend by 35%. Since being spun off from parent company Abbott Labs in 2013, AbbVie's dividend has grown by 140%, making it one of the fastest-growing dividends on the market.
Second, AbbVie can help baby boomers meet their goals by generating growth. Over the last three and five years, AbbVie ranked as the No. 1 big pharma stock in total shareholder returns. The company appears to be in position to continue its impressive growth in the future.
AbbVie's current product lineup is led by Humira, the top-selling drug in the world last year, with 2017 sales of $18.4 billion. The company claims one of the hottest cancer drugs with Imbruvica, which made nearly $2.6 billion last year, a 40% year-over-year jump. Hepatitis C drug Mavyret, which won FDA approval in 2017, is enjoying a strong launch.
The drugmaker's pipeline should also fuel revenue and earnings growth. Top candidates in AbbVie's pipeline include endometriosis and uterine fibroids drug elagolix, cancer drug Rova-T, and autoimmune disease drugs risankizumab and upadacitinib. Between its current products and promising new drugs like these on the way, AbbVie is projected to generate average annual earnings growth of 17%.
A dividend growth stock on sale
Jason Hall (Caretrust REIT): Over the past few months, shares of Caretrust REIT have fallen sharply along with most other healthcare REITs -- real estate investment trusts -- largely based on investor fears that rising interest rates would be bad for them.
On one hand, the concern makes sense, as most REITs use a lot of debt to acquire properties, and they make money on the spread between their cost of capital and what they can charge tenants in rent. And many investors are afraid that Caretrust and its peers could struggle to recoup the full impact of higher interest rates going forward.
However, I think the market's reaction has gone way too far and created an opportunity for long-term investors. At recent prices, Caretrust trades for 11.8 times last year's funds from operations (a valuation measure of REITs that excludes depreciation and amortization expense), a price that could prove to be an absolute bargain. Furthermore, Caretrust pays a solid dividend that yields 5.4% at recent prices, while paying out less than 60% of normalized FFO.
Whether you're already retired or still working, Caretrust is an excellent stock for baby boomers who are willing to buy and hold for the long term -- and profit from years of dividend growth to come.
Don't forget to brush
Demitri Kalogeropoulos (Colgate Palmolive): Every person's financial situation is different, but as you approach retirement, you'll likely be looking for stable stocks that don't tend to report big profit swings or make surprise dividend cuts. Colgate Palmolive provides a nice mix of that predictability in both earnings and income.
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The toothbrush and toothpaste leader recently announced an acceleration of its expansion pace as organic sales rose 2%, compared to a 1.5% uptick in the prior quarter. The increase came mainly from elevated marketing spending, which demonstrates that Colgate has effective levers it can pull when it wants to boost market share. Management didn't have to sacrifice much in the way of profitability, either. Operating margin was 26% of sales in the fourth quarter compared to 28% a year ago.
Executives were happy enough with their recent results that they're planning another boost to advertising spending in 2018. The investment should protect Colgate's dominant market position while speeding sales growth in an ultra-competitive industry. And while baby boomers wait for that steady rebound to gain steam, they can collect a dividend that's slated to rise by 5% in 2018 to mark Colgate's 55th consecutive year of payout raises.
