Many investors have been chasing high-growth stocks over the past year, especially those that were insulated from the pandemic. However, the performance of many of those stocks has sputtered over the past month as rising bond yields sparked a violent rotation from pricier growth stocks into cheaper value stocks.
Chasing growth is usually the right move for younger investors, but it can be a risky strategy for retirees. Generally speaking, retirees should stick with blue-chip companies that have generated decades of dependable growth, trade at reasonable valuations, and pay higher dividend yields than the 10-year Treasury's current yield of 1.7%.
Here are two conservative stocks that check all three boxes.
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1. Kimberly-Clark
Kimberly-Clark (KMB -0.28%), the consumer staples giant that sells paper-based products like Kleenex, Kotex, Cottonelle, and Huggies, has generated a total return of nearly 200% over the past decade after factoring in reinvested dividends.
It's raised its dividend annually for 49 straight years, which makes it a Dividend Aristocrat of the S&P 500 -- and one that will be crowned a Dividend King once it crosses the half-century mark. It pays a forward dividend yield of 3.5%, and it spent just 58% of its free cash flow (FCF) on those payments over the past 12 months.
Kimberly-Clark generates such reliable returns because most of its brands, which are sold in over 175 countries, enjoy brand loyalty and pricing power in commoditized markets. It provides essential products for nearly a quarter of the world's population, and only a few competitors like Procter & Gamble can match its scale.
Its revenue rose 4% in 2020, with 6% organic sales growth, as its adjusted earnings improved 12%. And it remained resilient throughout the pandemic, as robust sales of its essential products to consumers easily offset its declining enterprise sales to pandemic-stricken businesses.
The company plans to wrap up its three-year restructuring plan, which is focused on cutting costs, divesting weaker brands, and pursuing new growth initiatives, this year. Analysts expect its revenue and earnings to rise 5% and 1%, respectively, this year against tough comparisons to 2020 -- but the stock still looks cheap at 16 times forward earnings.
2. Coca-Cola
Coca-Cola (KO 0.68%), which raised its dividend for the 59th consecutive year last month, is a Dividend King that's generated a total return of about 120% over the past decade. It pays a forward dividend yield of 3.3% and spent 81% of its FCF on those payments over the past 12 months, and it's been a resilient stock throughout previous economic downturns.
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Coca-Cola might initially seem like a risky investment since soda consumption rates have been steadily declining worldwide. However, Coca-Cola has repeatedly expanded its beverage portfolio beyond sugary sodas with fruit juices, teas, sports drinks, bottled water, coffee, and even alcoholic drinks with acquisitions and internally developed products.
It's also refreshed its flagship sodas with lower-calorie versions, new flavors, smaller serving sizes, and new variants like Coca-Cola Energy and Coca-Cola with Coffee. These moves, along with its investment in Monster Beverage and its takeover of Costa Coffee, enabled Coca-Cola to aggressively evolve and expand its business.
The company's sales declined 11% in 2020, with a 9% decline in organic sales, as the pandemic shut down restaurants and other businesses that served its drinks, but it partly offset that decline with stronger sales of packaged drinks at retailers. Its comparable EPS declined 8%.
Those numbers look ugly, but analysts expect Coca-Cola's revenue and earnings to rise 11% and 10%, respectively, this year, as the pandemic ends and businesses reopen. The stock still looks reasonably valued at 22 times forward earnings and will remain a safe play for retirees in this shifting market.
