The market made a lot of growth-oriented investors rich this year with multibagger returns, especially in the frothy tech sector, but many of those stocks could now be too hot for recent retirees to handle.
Instead of chasing growth, retirees should think of focusing more of their investment portfolio on stable companies that pay sustainable dividends and trade at reasonable valuations. Let's take a look at three reliable blue-chip stocks that will boost your retirement wealth while allowing you to sleep soundly at night.
Verizon (VZ -1.66%) is the largest wireless carrier in the U.S. It isn't a high-growth company, but it has a wide moat and a much simpler business model than its rival AT&T (T -1.51%), which is desperately trying to expand into a media giant.
Verizon has raised its dividend for 14 straight years, and it currently pays a forward dividend yield of 4.3%. It spent just 53% of its free cash flow (FCF) on its dividend over the past 12 months.
Over the past 10 years, Verizon's stock generated a total return of 165% after factoring in reinvested dividends. AT&T generated a total return of 69% during the same period.
Analysts expect Verizon's revenue to dip 3% this year, due to the pandemic's impact on retail smartphone sales and Verizon Media, the smaller unit which houses AOL and Yahoo's internet assets, but its earnings are expected to rise 1% as it reins in its spending.
Next year, analysts expect Verizon's revenue and earnings to rise 4% and 3%, respectively, as the pandemic passes and new 5G phones hit the market. That stable recovery, along with Verizon's low forward P/E ratio of 12, makes it an easy stock to recommend to retirees.
2. Procter & Gamble
Procter & Gamble (PG -0.02%), the consumer staples giant that sells well-known brands like Pampers, Tide, Bounty, Charmin, Gillette, Tampax, and Crest, generated a total return of 186% over the past 10 years.
P&G has raised its dividend for 64 straight years, making it a Dividend King of the S&P 500, meaning it has maintained its streak for at least 50 years. It currently pays a forward dividend yield of 2.3% and spent just 52% of its FCF on those payments over the past 12 months.
P&G usually isn't a high-growth stock, but its organic sales rose 6% in fiscal 2020, which ended in June, as the pandemic sparked aggressive purchases of household essentials. That momentum continued in the first quarter of 2021, as its organic sales rose another 9%, with year-over-year growth across all of its business segments.
For the full year, P&G expects its organic sales to grow 4%-5% and for its core EPS to increase 5%-8%. The stock might look a bit pricey at 26 times forward earnings, but its wide moat, its insulation from pandemic-related headwinds, and its resilience during past economic downturns all justify that slight premium.
Broadcom (AVGO 8.16%), which produces a wide range of wireless chips for various industries, generated a whopping total return of more than 1,800% over the past decade.
But even after those big gains, Broadcom still pays a meaty forward dividend yield of 3.4% -- and it's raised its payout for nine straight years. That payout consumed just 48% of its FCF over the past 12 months.
The chipmaker, which was known as Avago before its takeover of the original Broadcom in 2016, has repeatedly expanded by gobbling up smaller chipmakers. One of its top customers is Apple, which accounted for a fifth of its revenue last year.
Over the past two years, Broadcom expanded into the infrastructure software market by buying CA Technologies and Symantec's enterprise security business. The stable growth of its new software businesses partly offset the pandemic-related disruptions of its semiconductor business.
However, Broadcom's semiconductor business stabilized on a sequential basis in recent quarters, and its revenue still rose 6% in fiscal 2020 as its earnings from continuing operations dipped 2%.
For fiscal 2021, analysts expect Broadcom's revenue and earnings to rise 10% and 17%, respectively, as the pandemic passes, smartphone makers launch new 5G devices, and carriers continue to upgrade their data center and networking infrastructure. Those are impressive growth rates and catalysts for a stock that trades at just 17 times forward earnings.