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3 Top Stocks for Retirees

By David Jagielski - Jan 21, 2021 at 6:15AM

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Investors can buy and hold these stocks without losing sleep at night.

The coronavirus pandemic is making it harder for Americans to avoid tapping into their retirement savings. According to one survey last year, close to 30% of people either stopped saving or decreased the amount of money they were putting aside for retirement. And many were tapping into their savings just to cover basic expenses.

Unfortunately, it's impossible to predict an event like the COVID-19 pandemic and how much money you'll need to get through it. But that makes it all the more important for retirees to have solid, blue-chip stocks in their portfolios that pay dividends that can bolster their savings as much as possible. Eli Lilly (LLY 4.39%), McDonald's (MCD 2.14%), and Mastercard (MA 1.19%) all fit that criteria.

Seniors giving the thumbs up.

Image source: Getty Images.

1. Eli Lilly

Drugmaker Eli Lilly has a diverse portfolio of products that makes the business resilient, even during tough times like a pandemic. Its top-performing drugs treat diabetes and cancer, and revenue for those segments has remained strong amidst broader market chaos. During the nine-month period ending Sept. 30, 2020, the Indiana-based company's total sales were $17.1 billion -- up 5.5% from the prior-year period.

Sales from diabetes drugs totaled $8.5 billion and grew 6.3% year over year, while oncology revenue of $3.8 billion rose by 13.3%. As a result, the company's pre-tax income of $4.8 billion remained strong, and it was 32% higher than last year's.

But there could be even more revenue growth in store for the company, as the U.S. Food and Drug Administration (FDA) has issued emergency use authorizations for two COVID-19 treatments, antibody therapy bamlanivimab and baricitinib, which is to be used in conjunction with antiviral remdesivir. Baricitinib treats rheumatoid arthritis, but last year, a study showed that when taken with Gilead Sciences' remdesivir (which the FDA has fully approved to treat COVID-19), it can speed up the recovery time for patients by about one day.

With a strong, diverse business that can potentially get a boost from its COVID-19 treatments, Eli Lilly is a solid investment for retirees that can generate long-term returns for their portfolios. Over the past five years, the stock is up more than 130%, outperforming the S&P 500, which has risen 100% during the same period. And on top of that, the healthcare stock also pays a dividend that yields 1.8% -- which is slightly higher than the 1.6% yield that investors can typically expect to earn from a stock that's included in the S&P 500 index.

2. McDonald's

Restaurant chain McDonald's is another stock that retirees should consider investing in. Its five-year returns total a little over 82%. That's slightly less than the market's returns, but the fast food giant pays its investors a higher yield of around 2.5%. What also sets the dividend stock apart from Eli Lilly and other income stocks is that it's a Dividend Aristocrat, and the company has raised its payouts for more than 40 years in a row.

That's not something you can do without stable earnings. Although lockdowns due to the COVID-19 pandemic have negatively affected its restaurants over the past year, the Illinois-based company has still posted a profit of $3.4 billion over its last three quarters, despite sales of $13.9 billion declining by 12.8% during that time.

The good news is that McDonald's is already showing signs of recovery. On Nov. 9, 2020, the company reported sales of $5.42 billion for the period ending Sept. 30, 2020, which was higher than the $5.4 billion analysts were expecting. Its earnings per share (EPS) of $2.22 also came in well above the $1.90 that Wall Street was looking for, as same-store sales rose 4.6% year over year.

McDonald's has adapted over the years to changing customer tastes and preferences, and that's made it one of the stronger restaurant brands in the industry. With solid earnings numbers, even amid challenging conditions during the COVID-19 pandemic, the business has shown investors that it's a safe buy even in the worst of times. And for retirees who can't afford to take chances with their savings, it's an easy stock to justify putting in your portfolio. If you're on a fixed income, its above-average yield will also help boost your cash flow every quarter.

3. Mastercard

Like McDonald's, Mastercard is a dominant force in its industry, right alongside its main rival Visa. But over the past five years, Mastercard has outshined its main competitor, soaring more than 260% in value compared to the 180% returns the California-based business generated during that time. In addition to that, the company pays a modest dividend that yields 0.5% (which is close to Visa's 0.6% payout).

Mastercard has struggled during the pandemic, as people are spending less money on eating out and leisure activities, while businesses are making Zoom calls rather than traveling. When the credit card company reported its third-quarter numbers on Oct. 28, 2020, its net sales of $3.8 billion were down 14% year over year. Although it still posted a profit of $1.5 billion, that was also down 28% for the period ending Sept. 30, 2020. The big reason is that its cross-border volume was down by 36%.

But there's hope that the future will be much stronger for Mastercard. A study from the Pew Research Center in 2018 found that a little over one-third of adults who are under 50 don't normally use cash on a regular basis. And with the pandemic creating more demand for contactless, non-cash transactions, even more consumers are likely going to be turning away from carrying cash in the future.

While Mastercard may be struggling today, its prospects still look great over the long term, especially once the economy recovers from the pandemic. Retirees will love this stock because it's not just stable, but will likely keep growing in the coming years. It can also generate some modest dividend income along the way.

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Stocks Mentioned

Eli Lilly and Company Stock Quote
Eli Lilly and Company
$298.85 (4.39%) $12.58
McDonald's Corporation Stock Quote
McDonald's Corporation
$233.91 (2.14%) $4.91
Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
$63.84 (0.90%) $0.57
Mastercard Incorporated Stock Quote
Mastercard Incorporated
$336.18 (1.19%) $3.96
Visa Inc. Stock Quote
Visa Inc.
$199.03 (0.84%) $1.66
Zoom Video Communications Stock Quote
Zoom Video Communications
$89.74 (-1.32%) $-1.20

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

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