Contrary to what many believe, it's easier to find stocks to invest in when you're in your 60s. That's because your choices narrow down significantly as you filter out young, aggressive companies that typically carry higher risk. As you near retirement, you need a portfolio choc-a-block with mature, established businesses that have a visible growth path and preferably offer solid dividends to supplement your income. Three interesting stocks that fit the bill are American States Water (NYSE:AWR), A.O. Smith (NYSE:AOS), and Realty Income (NYSE:O).
Can you go wrong investing in a necessity like water?
I know American States Water sounds likes one of the most boring companies out there, but wait until you hear about its dividend streak: This water utility has increased its dividend every year for 63 consecutive years, making it a top Dividend King with the longest dividend growth record among all publicly listed companies.
As with any other utility, the bulk of American States Water's revenue is regulated, which helps the company earn stable cash flows and dole out regular dividends. But while traditional electric utilities are feeling the heat of emerging trends like renewable energy, there's practically no substitute for water. That, coupled with the fact that American States Water gets nearly a quarter of its revenue from water services provided to military bases under contracts stretching for as many as 50 years, makes it an incredible defensive stock to own in a retirement portfolio.
Also, "defensive" doesn't mean this stock is a slow mover: It has more than doubled in just the past five years, with dividends adding a good 25% to the stock's rise. American States Water currently yields 1.8%, with management targeting annual dividend growth of above 5% in the long run. Considering the company grew its dividends at a compound annual rate of around 9.4% in the past five years, you can easily expect good dividend and capital appreciation from the stock for years to come.
A rapidly growing Dividend Aristocrat
A.O. Smith is yet another boring company, but its numbers and growth prospects are anything but that. This manufacturer of water heaters and boilers is growing at a phenomenal pace, having generated record sales of $3 billion in 2017. In April again, the company reported record first-quarter sales.
Sales from China alone hit $1 billion last year, opening up a huge market for A.O. Smith. In fact, markets like China and India offer massive potential as urban residential construction picks up to accommodate the population migrating from small towns and the rise of the middle-upper classes. Back home, A.O. Smith continues to exploit its brand image to its advantage: Lowe's recently picked the company as its primary supplier of water treatment products for its stores.
Here's the best part: A.O. Smith is also a great dividend stock that recently made it to the elite Dividend Aristocrats list after announcing its 25th straight annual dividend increase. The stock yields a paltry 1.2%, but its dividend growth more than makes up for it. Last quarter, for instance, A.O. Smith rewarded investors with a good 29% dividend hike, and the 25% growth in dividends in the past five years is a major reason the stock's been a multibagger. With management focused on organic growth, international opportunities, and commitment to shareholders, you can bank on this dividend stock to grow your retirement portfolio.
Trust this stock for monthly income
A real-estate investment trust (REIT) makes for a great investment choice in your 60s as they're structurally required to pass on 90% or more of their income as dividends to shareholders. A REIT typically buys properties in its sector of operation and leases them to earn a secure rental income stream as well as reap the benefits of any appreciation in property value. One REIT I'd recommend is Realty Income.
Realty Income owns more than 5,000 commercial properties spread across nearly 50 industries, with drug and convenience stores bringing in a bulk of its revenues. It's also a net-lease REIT, where contracts have built-in annual rent increase clauses, and the responsibility of most variable expenses like property taxes and insurance lies with the tenant. That makes for a very stable and secure source of income with fewer hassles, which, when coupled with the company's diversification, makes Realty Income an attractive stock.
As for dividends, Realty Income has an incredible track record: It pays a monthly dividend, has increased its dividends for 82 consecutive quarters, and currently yields a hefty 4.9%. The company's exposure to the retail sector has put some investors off, but investors at or near retirement know better and can count on the company's defensive and diversified portfolio for rich dividends and capital appreciation for years to come.