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 -0.68%), Walmart (WMT 0.57%), and Texas Instruments (TXN 0.25%) 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 -1.37%), it isn't burning cash with a desperate expansion of its media business.
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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 -1.65%) 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.
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.
