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If You're Retired, Consider Buying These 3 Stocks

By Chuck Saletta – May 24, 2020 at 4:30PM

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Solid balance sheets, operations in critical industries, and rising dividends. What's not to love?

Although you may be retired, chances are that you will still have a long term future ahead of you. That means you'll want to keep part of your money in stocks in order to benefit from their long-term growth potential. Their opportunity to grow is a key tool that you can use to give yourself a fighting chance against inflation over time.

Still, not every stock is a decent fit for a retiree's portfolio. With no work-related income and a need to draw from your portfolio to cover your costs, you're particularly at risk if a company runs into trouble. That's especially true in the coronavirus era where many companies have seen their revenues and incomes decline sharply because of state-mandated lockdowns and other social distancing requirements.

As a retiree, you need to focus on companies that have clear staying power, even during unprecedented times like these. As a result, if you're retired, consider buying these three stocks as part of the stock allocation in your portfolio.

Senior couple having an investment discussion with an advisor

Image source: Getty Images.

No. 1: An energy titan that raised its dividend during the pandemic

In mid-April, midstream energy titan Kinder Morgan (KMI -0.71%) announced that it was increasing its dividend by 5% over its year ago level. While that's below the 25% it had initially projected, it announced that increase at around the same time that prices on oil futures actually turned negative. That an energy company felt confident enough in its prospects to announce any increase at the time a primary input into its business was in shambles should tell you just how rock-solid it is today.

Not that long ago, Kinder Morgan had been forced to cut its dividend to protect against a threatened debt rating downgrade to junk status. It learned its lesson from that debacle and used the money it freed up to clean up its balance sheet. Thanks to that cleaned up balance sheet, it's in a much stronger position today than it was back then, which is a key driver of why it felt confident enough to increase its dividend in April.

Beyond the improved balance sheet strength, a key reason Kinder Morgan managed to raise its dividend at all is that a key part of its business is moving energy around in pipelines. Although energy demand did decline during the worst of the coronavirus crisis, it didn't stop entirely. Pipelines tend to be cheaper than the alternatives like trucks and trains when it comes to moving that energy around. That makes it likely that traffic will continue more robustly in the pipelines during the slowdown.

No. 2: A healthcare giant with an AAA-rated balance sheet

Injured teddy bear with bandages and a sling

Image source: Getty Images.

Indeed, if nothing else, the coronavirus driven slowdown has reiterated the importance of a strong balance sheet in assuring a company's long-term sustainability. That's particularly true when you see that healthcare was one of the harder hit industries during the pandemic as doctors and hospitals were forced to delay all but the most critical procedures .

That's what makes Johnson & Johnson (JNJ -1.10%) a standout in the healthcare industry. One of only two companies with a top AAA debt rating , Johnson & Johnson is very well prepared to survive the pandemic and come out stronger on the other side of it. It's so confident in its future, in fact, that it increased its dividend by better than 6 percentage points in mid-April, while coronavirus concerns were in full swing.

Remember, too, that other medical concerns don't stop entirely, even during a pandemic. That means that Johnson & Johnson is still getting revenue even as parts of its business may slow during the pandemic. It also means that many of those delayed procedures will still take place, once the coronavirus crisis lessens. With its incredibly strong balance sheet, Johnson & Johnson certainly has the fortitude to wait a fairly decent amount of time for that recovery to come.

No. 3: A retailer that has handled the crisis with incredible resiliency

While many retailers are on the verge of bankruptcy (or have already declared it) because of the coronavirus pandemic, Costco Wholesale (COST -1.91%) has bucked that trend. Excluding the impact from lowered gasoline prices, Costco's same store US sales were actually flat in April 2020 vs. April 2019. When you back out the impact of the parts of its business directly affected by the pandemic, its U.S. same-store sales were actually up around 11%.

Those amazing results in the time of a pandemic are testament to Costco's club model of streamlined selections, large sizes, and reasonable prices. In an era when consumers want to minimize trips, that combination means that they can get most of their core needs in one trip, at reasonable prices, while minimizing their total number of trips.

That strength means that Costco was actually able to increase its dividend by nearly 8% in April, bucking the general retail malaise and rewarding its shareholders. With more than $8 billion in cash, equivalents, and short term investments on its balance sheet and around the same amount of total debt, Costco also has a solid balance sheet. That is helping it get through these challenging times and enabling it to keep the parts of its business affected by the coronavirus ready to redeploy when the crisis subsides.

Solid balance sheets, critically important operations, and rising dividends

Although Kinder Morgan, Johnson & Johnson, and Costco Wholesale operate in different industries, key things tie them together and make them worth considering for your retirement portfolio. With solid balance sheets, they have the flexibility they need to weather an economic storm. In addition, with operations in critical industries, they still have revenues coming in even during a pandemic-driven slowdown.

With both those strengths in place, all three have been able to raise their dividends in a time when many other companies have either reduced or eliminated their shareholder payments. Since your asset allocation plan will likely call for you to continue to own stocks even well into your retirement, these three are certainly ones worthy of your consideration.

Chuck Saletta owns shares of Kinder Morgan and has the following options: short January 2021 $18 puts on Kinder Morgan, short January 2022 $20 puts on Kinder Morgan, long January 2022 $20 calls on Kinder Morgan, and long September 2020 $24 calls on Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool recommends Costco Wholesale and Johnson & Johnson. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Johnson & Johnson Stock Quote
Johnson & Johnson
$164.53 (-1.10%) $-1.83
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
$478.98 (-1.91%) $-9.31
Kinder Morgan, Inc. Stock Quote
Kinder Morgan, Inc.
$16.72 (-0.71%) $0.12

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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