When considering what stocks are best for a retiree, the first question might be, why stocks at all? Shouldn't the focus now be on bonds and insured savings and the like, to supplement whatever fixed income you have coming in from Social Security and any other defined benefit plans you might have?
Well, the fact of the matter is that well-selected equities are an important part of a retirement strategy focused on providing both passive income and capital growth for your non-working years ahead.
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Real estate investment trusts (REITs) are a natural segment to look for this kind of and four of them stand out as excellent options for retirees. They are cell tower giant Crown Castle International (CCI -1.68%), life sciences landlord Alexandria Real Estate Equities (ARE -2.01%), multifamily real estate owner Essex Property Trust (ESS -0.43%), and Agree Realty (ADC -0.27%), a top-performing retail REIT.
Check out this chart. It shows the total return -- which combines dividend payouts and share price -- over the past 10 years for each of these companies. Added in for comparison is Vanguard Real Estate Index ETF, a weighted compilation of about 160 REITs. As you can see, all four have outpaced the index.
ESS Total Return Level data by YCharts.
The next chart shows the yield for each of these four REITs over the past decade. Yield is the percentage of the share price paid out in dividends, and a stock on a roll, like Alexandria was until lately, can show a relatively low yield and strong payout record at the same time. Currently it's yielding about 2.8%, the lowest of these four, but is on a 12-year streak of raising its dividend, including by about 6.3% in the past three years.
Crown Castle, meanwhile, has raised its dividend for seven straight years, including a 10.5% jump from $1.33 to $1.47 per share last August. Agree has raised its payout by 6.5% over the past three years (and it pays monthly, instead of quarterly), while Essex is a Dividend Aristocrat with a record of 29 straight years of dividend increases, including a bump of about 5.3% for the first quarter of 22.
ESS Dividend Yield data by YCharts.
Friends with dividends
Each of these REITs seems particularly well positioned to continue thriving, with portfolios already full of performing properties and continuing investment in more. Alexandria, for instance, is a pioneer in providing specialized office space for life sciences and is building more in and around its collaborative campuses in key markets on both coasts. Crown Castle is the second-largest U.S.-based owner of mobile towers and is shifting its emphasis to small-cell nodes and fiber-cable networks.
Essex, meanwhile, is busily upgrading its collection of upper-end apartment communities scattered across affluent markets from Seattle to Southern California, and Agree is rapidly adding to its collection of high-performing net lease retail properties across the country, many of them anchored by stalwarts like Walmart and Tractor Supply.
One look at their annualized rate of growth in funds from operations (FFO), a key metric for evaluating equity REITs, and you can see why these companies have been able to support their generous dividends. This performance, combined with their ability to grow revenue, speaks to the likelihood that these stocks and their managers will continue producing steadily growing dividends that can pad a retiree's passive paycheck nicely going forward.
ESS Funds from Operations (FFO) (Annual) data by YCharts.
Now's a good time to buy, too
Each of these stocks is down year to date. Agree is only down about 3.4% while Crown Castle and Essex are off about 16%, and Alexandria is being hammered and has shed about 26% year to date, as much because of its clients' performance as its own, it looks like to me. I own Agree and Alexandria now and plan to add to those stakes, and I'll probably add the other two to my portfolio soon, too. They all look like good equities for this retiree to befriend.
