Please ensure Javascript is enabled for purposes of website accessibility

3 Stocks for a Better Retirement

By Leo Sun – Aug 2, 2020 at 5:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Verizon and two other resilient blue chip stocks will generate stable returns throughout the next recession.

The end of the 11-year-old bull market earlier this year probably caused many retirees to consider selling some stocks. However, resilient stocks such as Verizon (VZ -2.00%), Walmart (WMT 0.29%), and Texas Instruments (TXN -2.30%) shouldn't be tossed aside. Let's see why these three blue-chip stocks should remain long-term holdings in your retirement portfolio.

1. Verizon Communications

Verizon, one of the largest telecom companies in the U.S., is ideal for retirees because it's a stable stock that pays reliable dividends. Its wireless unit served 95 million consumers and 25 million business customers last year, while its wireline segment hosted 6.5 million broadband connections. That massive customer base gives Verizon a wide moat, and unlike its top rival, AT&T (T -1.57%), it isn't burning cash with a desperate expansion of its media business.

An older woman uses a smartphone while sitting on the couch.

Image source: Getty Images.

Verizon spent less than half its free cash flow on dividend payments over the past 12 months. It pays a dividend, which currently has a 4.3% forward yield, and it's raised that payout annually for 13 straight years.

Verizon still faces stiff competition in the wireless market and a pandemic-induced slowdown in smartphone sales, but its growth should improve as new 5G-enabled phones and devices hit the market. That wireless expansion, along with fiber upgrades for wireline customers, should stabilize its long-term growth.

Verizon has delivered a total return of more than 200% over the past decade, but it still trades at just 12 times forward earnings. Past performance never guarantees future gains, but Verizon's low valuation, high yield, and wide moat should help retirees sleep better at night.

2. Walmart

Walmart, the largest retailer in the U.S., also delivered a total return of more than 200% over the past decade. Its scale enabled it to match Amazon.com's (AMZN 0.58%) prices and delivery options, it countered Costco with its Sam's Club warehouse club, and it constantly upgraded its e-commerce ecosystem, renovated its stores, and raised wages.

It also expanded internationally by acquiring a stake in China's top retailer, JD.com, and buying out Indian e-commerce giant Flipkart. Those moves were costly, but they helped Walmart survive the retail apocalypse, which wiped out many other brick-and-mortar retailers.

A Walmart delivery truck.

Image source: Walmart.

Walmart has raised its dividend annually for nearly five decades, making it an S&P 500 Dividend Aristocrat -- a company that has raised its payout for at least 25 straight years. It spent just a third of its free cash flow on its dividend over the past 12 months, and it pays a forward yield of 1.7%.

Walmart's stock isn't cheap at 26 times forward earnings, since its reputation as a defensive stock and pandemic-induced shopping attracted a lot of bulls over the past year. However, it remains a best-in-breed retailer that's likely to generate stable returns for years to come.

3. Texas Instruments

Texas Instruments, along with its diverse portfolio of analog and embedded chips, doesn't attract as much attention as higher-growth chipmakers, but it's one of the most shareholder-friendly semiconductor companies.

TI aims to return all of its free cash flow to investors through buybacks and dividends. It's reduced its share count by 46% since 2004, and it's raised its dividend annually for 16 straight years. It spent 56% of its free cash flow on dividends over the past 12 months, and it currently pays a forward yield of 2.8%.

The company generates stable cash flow by producing less capital-intensive chips than its industry peers. A shift from the 200-millimeter manufacturing process to the cheaper 300-millimeter process boosted its margin in recent years, and it benefits from the long-term secular growth of the automotive and industrial industries -- which both require an increasing number of analog and embedded chips for their connected devices.

Those markets are exposed to macro headwinds, but TI's total return of nearly 570% over the past decade indicates it will ride out those cyclical slowdowns. Investors are currently paying a premium for TI at 30 times forward earnings, but its diverse portfolio, high margins, and shareholder-friendly strategies all justify that higher valuation.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Amazon, AT&T, and JD.com. The Motley Fool owns shares of and recommends Amazon and JD.com. The Motley Fool owns shares of Texas Instruments. The Motley Fool recommends Costco Wholesale and Verizon Communications and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Walmart Inc. Stock Quote
Walmart Inc.
WMT
$153.51 (0.29%) $0.44
Texas Instruments Stock Quote
Texas Instruments
TXN
$173.00 (-2.30%) $-4.07
Verizon Communications Stock Quote
Verizon Communications
VZ
$38.24 (-2.00%) $0.78
AT&T Stock Quote
AT&T
T
$18.82 (-1.57%) $0.30
Amazon Stock Quote
Amazon
AMZN
$93.95 (0.58%) $0.54

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.