The average American is living longer than ever before. In 2012, the average 65-year-old was expected to live almost another 20 years, according to the Centers for Disease Control and Prevention. The Census Bureau believes that by 2050, 10% of the American population might be over the age of 90. What does this mean for investors? It means, more than ever before, that older investors need to be exposed to the superior historical growth returns of stocks. Yes, this comes with more portfolio volatility, but investors in their 70s cannot risk missing out on the growth returns the stock asset class brings.
So, what stocks should this group of investors look for when making stock selections? In many ways, the same qualities all investors need to be looking out for, with some priority given to things like dividends, value, and competitive positioning, and a little less attention to high-flying growth stocks with nosebleed valuations. Here are three stocks that I think fit the bill perfectly.
With longer expected life spans, investors need to be prepared to have investments in the stock market well into their 70s and beyond. Image source: Getty Images.
A quackin' good value
Aflac Incorporated (AFL -0.45%) is probably known more for its lovable duck spokesperson than its insurance policies. Yet the insurer has been profitable for decades by selling supplemental insurance plans covering everything from cancer to hospital visits and injuries. What many investors might not know is that the company actually makes a majority of its revenue in Japan, not the U.S.
In the company's second quarter, total revenue grew to $5.6 billion, a 3% increase year over year, while adjusted earnings per share (EPS) jumped to $1.07, a 20.2% increase year over year. Earnings got a boost from U.S. tax reform and popular new cancer plans being sold in Japan.
What makes Aflac especially attractive for investors in their 70s is its valuation and long history of dividend hikes. Based on the midpoint of its full-year 2018 guidance, Aflac sports a P/E ratio just over 12, and in an aging bull market, that type of value is getting hard to find. Even better, Aflac increased its dividend by 16% earlier this year, marking the 36th consecutive year it has done so. The hike secured Aflac's place in the distinguished Dividend Aristocrats club for at least one more year. With a P/E ratio firmly planted in value territory and a dividend yield of about 2.24%, Aflac is a stock older investors might not want to miss out on.
Don't leave your portfolio without it
The American Express Company (AXP -0.54%) is one of the four major credit card networks in the U.S. Unlike its larger competitors, Mastercard Inc. and Visa Inc., however, American Express lends directly to its account holders. This closed-loop network, as it is often referred to, gives American Express access to valuable data that most financial institutions simply don't have. Before he left the company earlier this year, longtime CEO Kenneth Chenault said: "Our closed loop, which combines information from both our issuing and network businesses, gives us access to data that is both broad and deep. Increasingly, the information we analyze in the age of Big Data is a critical ingredient in building value for both card members and merchants."
In its second quarter, Amex's revenue rose to $10 billion, a 9% increase year over year, and its EPS grew to $1.84, an even more impressive 25% increase over last year's second-quarter total. Based on the company's trailing-12-month EPS of $6.78, Amex boasts a valuation far below the market's average, with a P/E ratio of just 15. The company has raised its dividend every year since 2012, and shares currently carry a dividend yield of 1.38%. While the yield is a bit low, last year American Express raised its dividend by 10%, and with a payout ratio of just 21%, there is more than enough room for the company to continue double-digit dividend increases years into the future, even if earnings stagnate. With a strong position stemming from its unique business model, a growing dividend, and a compelling valuation, this is a worthy stock for all investors to consider.
A big network's big value
Verizon Communications Inc. (VZ -0.56%) boasts what most third parties judge to be America's best wireless network. While that performance gap is narrowing, the coming shift to 5G wireless speeds could once again give Verizon a large lead over its competitors. In the company's second-quarter conference call, retiring CEO Lowell McAdam stated:
Verizon has a 100% ownership of our wireless business, and its industry-leading network and customer base. We have driven the 5G ecosystem by pushing the industry to adopt the next generation several years ahead of original expectations, and we are positioned to be the clear leader in the deployment of 5G services based on our technological expertise, asset base, engineering talent and spectrum portfolio. This leadership position is attracting opportunities in areas such as over-the-top TV, smart cities, transportation, education and healthcare, just to name a few.
In the company's stronger-than-expected second quarter, Verizon's total revenue rose 5.4% to $32.2 billion and its adjusted EPS grew 25% to $1.20. Verizon's current P/E, based on its adjusted EPS over the last year, is just 12.5. The stock's current dividend yield is 4.5%, and well-supported by earnings. With a yield higher and a P/E lower than the market's average, an investment in Verizon makes a lot of sense for investors in their 70s.
