When you get closer to or enter retirement, your investment approach will likely shift from building a nest egg to trying to live off of your savings. It requires a mental shift in the way you invest, with dividends and safety becoming materially more important. If that sounds like the transition you are making or have already made, you'll want to look at Procter & Gamble (PG -0.06%), Texas Instruments (TXN 6.38%), and Realty Income (O 0.27%). Here's why.
1. Rarely cheap
Consumer staples giant Procter & Gamble's 2.6% dividend yield is only about middle-of-the-road, historically speaking. That suggests that the stock is roughly fairly priced but definitely not cheap. For conservative long-term investors, it might be interesting, but value types will probably want to keep it on the wish list. The dividend has been increased annually for over 65 years, making it a Dividend King.
The company owns a collection of brands that are leaders in their respective categories, and its products tend to be things consumers buy regularly, in good times and bad. Thus, the company's business tends to be relatively stable over time. On top of that, Procter & Gamble has an investment-grade-rated balance sheet, so it has the financial strength to weather difficult times.
It is the kind of stock that you can set and, more or less, forget. One of the key factors here, though, is that P&G has a long history of using innovation to differentiate its products, allowing it to charge more because it offers more. If you want to own one of the best consumer staples stocks around, Procter & Gamble is an easy choice.
2. Keeping it simple
Chip giant Texas Instruments is a technology name that even a conservative investor can love. Although the chip sector is currently facing a cyclical downturn, the company is performing quite well from a fundamental standpoint, beating Wall Street's earnings expectations in each of the last four quarters. And its 2.8% dividend yield is toward the high side of its historical range, suggesting the stock is cheap today.
The most notable thing about this investment-grade-rated tech company, however, is how simple it really is. The vast majority of its chip portfolio consists of the simplest kinds of chips, which help turn physical world things (like a button push) into digital signals. These types of chips go into just about everything, which is why the company has 100,000 customers. With the world increasingly going digital, long-term demand should continue to grow.
The dividend, meanwhile, has been increased annually for 19 years at a huge 25% compound annualized growth rate. Right now, this stock looks like a dividend growth investor's dream stock, noting that it is using the industry downturn to invest in more chip factories so that it comes out the other side an even stronger competitor.
3. Slow and boring
Rounding out this list is Realty Income, a real estate investment trust (REIT) that owns net lease properties. Net leases require the tenants, generally a single company, to pay nearly all of the operating costs of the assets they occupy. While any one property may be high risk, spread across a large portfolio, this is a very low-risk approach. Realty Income is a net lease giant with over 11,700 properties, and roughly 80% of its portfolio is in the retail sector, where properties are very similar and fairly easy to buy and sell.
Like the other two names above, Realty Income is an investment-grade-rated company. But one of the more interesting things about the net lease space is that there are, generally, long lease terms, with Realty Income's average lease length sitting at over 10 years. Recessions are generally shorter than that, so the REIT should be able to ride out a downturn in relative stride, which helps explain how it has increased its dividend annually for 27 consecutive years.
That said, investors tend to afford Realty Income a premium price compared to smaller peers, with the current 4.4% yield significant on an absolute level (relative to the market) but not particularly generous historically. However, Realty Income is a foundational investment that might be worth paying a premium if you are a long-term investor.
Stick to the best
When you near retirement, you have to start focusing on owning more reliable stocks. A mistake gets harder to absorb when you no longer earn as much income as you did during your working years, which is why you'll want to look at financially strong Procter & Gamble, Texas Instruments, and Realty Income. They all have impressive histories of rewarding investors in good markets and bad, industry-leading positions, and the wherewithal to maintain their dominance over time.
