Let's face it. The average 35-year-old's investment portfolio should look considerably different than the average 65-year-old's. The former has plenty of time to ride out the market's inevitable ups and downs, and probably doesn't need investment income just yet. The latter, on the other hand, is likely in or nearing retirement and therefore looking for income to help pay monthly expenses.
With that as the backdrop, here's a closer look at three names that wouldn't necessarily be out of place as part of a younger person's stock holdings, but make a great deal of sense for the typical retiree.
Investors who know anything about AbbVie (ABBV -0.19%) probably know it's the name behind arthritis and Crohn's disease treatment Humira, which accounts for nearly 40% of the company's revenue. And that's a problem. Humira is AbbVie's breadwinner, but the drug is also going to start losing its most important patent protections beginning in 2023. It will lose more of that protection in the following years. This brewing revenue headwind is a big reason AbbVie shares have underperformed since 2018.
The focus on Humira's woes, however, has largely distracted investors from noticing that this pharmaceutical company has a portfolio and pipeline capable of offsetting Humira's waning revenue.
One of those other drugs is cancer-fighting Imbruvica. While the relatively young drug's sales of $2.6 billion through the first half of this year -- about a tenth of AbbVie's top line -- is impressive, it's also only a fraction of its ultimate potential. Some analysts believe Imbruvica will be able to generate $10 billion or more in annual sales within five years. The company also foresees 2025 combined revenue of more than $15 billion for Skyrizi and Rinvoq, as their approved uses and their acceptance grow between now and then. The two therapies have jointly produced just under $2 billion worth of sales through the first two quarters of 2021.
The point is, while it may never have another Humira, AbbVie's got a low-risk, relatively proven portfolio and pipeline that's not being reflected in the stock's performance. Not only is the company capable of driving future growth, it's also capable of supporting the continued payment of its dividend. In this vein, AbbVie's current dividend yield of 4.8% only bolsters the bullish case for retirees.
2. Procter & Gamble
AbbVie's isn't the only low-risk, proven portfolio that future or current retirees can feel good about plugging into. The Procter & Gamble Company (PG 0.48%) is another pick with a palatable balance of safety, income, and volatility.
P&G's product lineup may be bigger than you realize. Consumers more or less know that Tide laundry detergent, Crest toothpaste, and Pampers diapers are all part of the Procter family. But did you know that Procter & Gamble is also parent to Bounty paper towels, Gillette razors, Puffs tissue, Cascade dishwasher detergent, Pepto-Bismol, and more? These are well-loved and well-recognized brands, and for good reason.
See, Procter & Gamble is typically one of the world's biggest spenders on advertising. It's expected by Ad Age, in fact, to reclaim its top spot this year by spending on the order of $11 billion on the effort. Rival consumer goods companies just can't keep up with the big marketing budget that stems from Procter's sheer scale. This of course lets P&G maintain its leading market share in many product categories.
That's not even the biggest reason a retiree would want to own a piece of Procter & Gamble. More than anything, this company sells the products that consumers buy regardless of the economic environment; that's why they're called consumer staples. The business's recurring revenue also makes for a reliable dividend, which Procter has not only paid every year since 1890, but increased every year for the past 65 years. This may not be a high-growth business, but the nature of the company's product lineup means it's producing the sort of revenue, income, and dividends that retirees count on.
3. Texas Instruments
Finally, add Texas Instruments (TXN 0.19%) to your list of top stocks for retirees.
It may seem a bit out of place at first. The technology sector is known for its never-ending cyclicity stemming from an ongoing stream of innovations, and subsequently, tech stocks are known for their volatility -- the last thing retirees need in their portfolios.
Texas Instruments is something of an exception to this norm. Rather than going toe-to-toe with R&D-intensive names like Nvidia or Qualcomm, TI is largely focused on making the basic semiconductors and chips that are in demand all the time, and are supportive of all technology manufacturers. For instance, Texas Instruments makes circuitry for internet routers, power supplies for televisions, and the control systems for coffee makers, just to name a few. It's not always sexy, but the bulk of this company's portfolio is always marketable.
There's a kicker, however. That is, in the same sense the repeat purchases of Procter & Gamble's consumable goods fund its reliable dividend, recurring sales of Texas Instruments' basic electronics components effectively make it a "consumer staples" name in the industrial and technology sectors, similarly supporting a reliable dividend payment. In fact, TI has made a dividend payment in every quarter since 2004, and has upped its annual dividend from $0.56 per share in 2011 to an annualized payout pace of $4.08 right now.
Don't look for the same sort of dividend growth going forward. Roughly half of the company's profits are now consumed by dividend payments, which is fine. But upping the payout ratio any further could stymie needed investments in its own growth. Still, TI brings a brilliant mix of income, growth, and consistency to the table.