Retirement generally means shifting from building your nest egg to living off of your nest egg, which alters the way you have to think about investing. So, if you are retired, you'll likely want to own relatively low-risk stocks that pay generous dividends. Here are two that you should consider today, even though they are in out-of-favor sectors.
1. The diversified landlord
Owning property in the age of COVID-19 is difficult, with some real estate investment trust (REIT) sectors getting hit particularly hard (think retail assets). That's why W.P. Carey (WPC 0.13%) stands out. It is one of the most diversified REITs that investors can buy. The landlord's portfolio is spread across industrial (24% of rent), office (23%), warehouse (22%), retail (17%), self storage (5%), and other (the rest). It also generates around a third of its rent roll from Europe.
The benefit of this diversification was apparent in April -- while some REITs were having trouble collecting rent, 95% of W.P. Carey's tenants paid up. That's left the company in a very strong position relative to peers, some of which are simply hoping to muddle through the current rough patch. For example, while many REITs have been cutting their dividends, W.P. Carey just increased its payout (albeit by a token amount). In fact, the company's top brass is looking at the broad economic downturn as an opportunity to invest in new properties. The company has a history of zigging while the world zags.
If that sounds like an interesting opportunity, then you'll also want to take a look at the REIT's generous 6.2% yield. Backing that dividend up is over two decades of annual dividend increases. If you can handle the idea of owning a company that charts its own course, W.P. Carey is worth a deep dive today.
2. The cleanest dirty shirt in the laundry
W.P. Carey is easy to like when you dig into the story a bit, but it's harder to like the next name, energy giant Chevron (CVX -2.28%). The big negative today is low oil prices, which aren't likely to recover until there's a sustained economic recovery from COVID-19. That could take some time, and there's likely to be a lot of choppiness along the way.
That's actually one of the reasons Chevron stands out. It has a stronger balance sheet than any of its closest peers, a fact that should allow it to muddle through this rough patch in relative stride. The company's financial debt to equity ratio was a modest 0.25 times at the end of the first quarter, well below those of most peers.
This suggests that Chevron will be able to continue its over-three-decade-long streak of dividend hikes by leaning on its balance sheet until oil prices recover. Basically, it should be able to outlast smaller, weaker players that are increasingly turning to bankruptcy to help deal with their burdensome debt loads.
But what about the future? Oil is a dirty fuel that is being replaced by cleaner sources. That's true, but energy transitions take a long time to unfold because technology and infrastructure have to be developed and put in place. Oil is likely to remain vital to the global energy picture for years to come.
That's why Chevron focuses less on short-term price swings and more on the long-term supply/demand dynamics. Yes, COVID-19-related economic shutdowns have upended near-term industry dynamics, but the long term is a different story. Oil is still a very important global fuel. Investors, however, have put even the strongest names, like Chevron, in the Wall Street dog house. Chevron's nearly-6% yield, easily near the highest levels in the company's history, is proof of that.
It takes a strong stomach to step in when others are fearful, but that's often a time when you can pick up great values. All in, financially strong Chevron looks like it's on sale today.
A little bit of risk, a lot of income
Neither W.P. Carey nor Chevron is easy to love right now. But that's exactly why they offer such generous dividend yields. If you take some time to understand the long-term stories here, you'll likely realize they are worth your attention. Both have pretty desirable positions within their respective industries that set them apart from the peers they are being lumped in with. Meanwhile, you can collect their fat dividends while you wait for investors to realize that these companies are a cut above the rest.