Please ensure Javascript is enabled for purposes of website accessibility

If You're Retired, Consider Buying These 3 Stocks

By Ryan Downie - May 20, 2021 at 8:43AM

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

These three dividend stocks are industry leaders that retirees should consider adding to their investment portfolios.

If you're a retiree, you need to be careful about which stocks are in your investment portfolio. Income is important, so you should prioritize dividend stocks. You also want to make sure that these are stable companies that won't fall off the map too quickly and drag your savings down with them. Luckily, there are a handful of great stocks that fit these criteria and can provide some modest growth as well.

Consider these three established dividend stocks with wide economic moats for your retirement portfolio.

1. Automatic Data Processing (ADP)

Automatic Data Processing (ADP 2.62%) provides human capital management services, such as payroll, benefits administration, HR, and productivity tracking.
ADP doesn't do anything too revolutionary these days, but it's a stable company with more than 860,000 customers spread across 140 countries. It fulfills some core administrative functions that are common to almost all businesses, and it's the leader of the space. Competition will always be a concern, especially as fintech and work culture evolve, but ADP still retains a wide economic moat due to switching costs, breadth of services, and brand strength. In short, you shouldn't expect much more growth than the 5.6% delivered annually over the past three years, but it's also unlikely that ADP will go away anytime soon.

ADP is a Dividend Aristocrat, boasting 45 consecutive years of dividend growth. Consistent income should be appealing for retirees, and there's no reason to think that will be slowing down. Analysts are projecting roughly 10% annual profit growth over the next few years, and the company produces plenty of cash. ADP's 17% net margin indicates that it's sufficiently profitable, and more than $2.6 billion in free cash flow over the past year shows that those earnings can be distributed to shareholders. The 1.9% dividend yield might not be the highest available, but it's respectable in today's market.

ADP's consistency and sustainable 64% payout ratio should instill confidence that the dividend will continue rolling into your bank account each quarter.

Retired man happy about cash flying around him.

Image source: Getty Images.

2. PepsiCo 

PepsiCo (PEP 1.31%) doesn't just make soft drinks. In addition to its flagship beverage brand, it has a massive portfolio of food and snack brands that generate approximately half of its revenue, including Lay's, Cheetos, Quaker Oats, Tostitos, Sabra, Doritos, and Stacy's. PepsiCo runs a diversified global consumer staples business.

That creates a level of stability retirees love. PepsiCo has remained a constant force across economic cycles. As consumer behaviors and tastes have evolved, so has the portfolio of brands carried by the company. Even in the past year, the pandemic and subsequent reopening have caused drastic changes in consumer activity. Through all of this, PepsiCo simply moved forward at a steady single-digit growth rate.

Again, it's nothing spectacular, but it's another Dividend Aristocrat with a wide economic moat. A healthy 2.8% dividend yield is also pretty great in today's market, and it provides immediate income for investors. It's hard to imagine why retirees would lose any sleep over their investment in PepsiCo.

3. Sysco

Sysco (SYY 3.05%) is a food distributor that serves more than 625,000 restaurants, healthcare facilities, and other locations at which meals are prepared. It dominates its industry, with nearly 70% market share, but that entire sector suffered dramatically through the pandemic. Many restaurants closed, students largely did not attend universities (including their dining halls), elective medical procedure volumes dropped, hotels had fewer guests to feed, and very few people attended sporting events and concerts. As consumer behavior normalizes and the world reopens, Sysco will be one of the main beneficiaries.

Sysco reported a 43% decline in sales for the fiscal year that ended in June 2020. Over the next three quarters, revenue fell an additional 20%. Despite all of these challenges, the company was still profitable for the fiscal year 2020, and it has earned $374 million over the subsequent nine months. Sysco experienced acceleration in its most recent quarter, and it seems that the company has weathered the storm while reducing debt.

Sysco maintained its dividend last year, and it was the first time in 52 years that it had not increased. Pent-up demand can quickly restore activity to pre-pandemic levels, which would allow Sysco to easily fund its shareholder distributions. The stock pays a 2.14% forward yield. The short-term uncertainty might be off-putting for some retirees, but Sysco is a great bet for stability and cash flow once things settle down.

 

Ryan Downie has no position in any of the stocks mentioned. The Motley Fool recommends the following options: long January 2023 $50 calls on Sysco and short May 2021 $85 calls on Sysco. 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

Pepsico, Inc. Stock Quote
Pepsico, Inc.
PEP
$177.33 (1.31%) $2.29
Sysco Corporation Stock Quote
Sysco Corporation
SYY
$84.77 (3.05%) $2.51
Automatic Data Processing, Inc. Stock Quote
Automatic Data Processing, Inc.
ADP
$256.78 (2.62%) $6.55

*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
389%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/12/2022.

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.