Investors who are in retirement should be looking for safe, reliable companies that offer good long-term growth prospects at a lower than average risk level. These types of investments tend to have sustainable competitive advantages that allow investors to sleep well at night knowing that their company is on solid financial footing.
Selena Maranjian: Proctor & Gamble is an excellent stock for just about every investor – and perhaps especially retirees. That's because it's rock-solid and unlikely to surprise you by going out of business or posting a massive drop in revenue. Plus, it offers a meaningful dividend that recently yielded 3.3% and that it's been hiking that payout by an annual average of 6.6% over the past five years.
The company is a consumer products juggernaut, boasting 23 brands that rake in $1 billion or more in annual sales and 14 more brands generating between $500 million and $1 billion. You might be familiar with some of its names: Always, Bounty, Charmin, Crest, Dawn, Downy, Febreze, Gain, Gillette, Head & Shoulders, Olay, Oral-B, Pampers, Pantene, and Tide.
The company is not without some challenges, as revenue has been slipping a bit in recent years, along with earnings and profit margins, due in large part to the strong dollar and unfavorable exchange rates. (P&G generates only 35% of its revenue in the U.S.) On the other hand, its free cash flow is robust and growing, topping $11 billion annually, and the company has been boosting its productivity significantly. In April, management noted, "We're driving cost savings well above the original target run rate of $1.2 billion per year, with $1.6 billion of savings this fiscal year." It's also shedding dozens of its less profitable brands, so that it will be leaner, more focused, and more profitable.
Best of all, Procter & Gamble's stock isn't trading at much of a premium these days, offering long-term investors a reasonable entry point. Remember that retirees can be long-term investors, too -- even if you're 72, you might have 20 more years left!
Todd Campbell: Retirees are living longer and that means that retirement savings need to stretch longer than they have in the past. One way that retirees may be able to do this is to sprinkle large, market leading, growth companies into portfolios alongside steady-eddies like Proctor and Gamble. One growth stock that I think could fit the bill is Gilead Sciences.
Gilead Sciences is the market share leading manufacturer of medicine used to treat HIV and hepatitis C. It also markets medicine used to treat certain cancers and cardiovascular disease too. Across those medicines, Gilead Sciences expects to rack up sales of more than $28 billion this year, and that means plenty of profit-friendly cash flow that it can be reinvested and returned to investors. Earlier this year, the company initiated its first quarterly dividend and, in the first quarter alone, Gilead Sciences bought back $3 billion worth of its stock.
Although competitors are always angling to win away market share from Gilead Sciences, the company's long proven track-record, rock-solid balance sheet, and significant cash stockpile suggest that it can withstand those threats. If so, then I think Gilead Sciences might be a great name to stash away in portfolios during retirement.
Brian Feroldi: It's no secret that energy stocks have been hit hard recently with the slump in oil and gas prices, so I think it could be a great time for yield hungry investors to go bargain hunting. One interesting name for retirees to consider is Spectra Energy, one of the largest midstream natural gas companies in the United States.
Spectra represents a lower risk way to invest in the energy market as the company derives the bulk of its revenue by collecting fees from moving natural gas through its huge network of pipelines. That fee-based revenue is secured by long-term contracts, which allows for reliable revenue projections and greatly insulates the company from swings in commodity prices.
Spectra is planning to add more than $35 billion in new projects by 2020, and already has commitments on $16.8 billion, which is a huge number when compared to Spectra's current market cap of roughly $20 billion and provides investors with years of predictable growth. Spectra currently has a 4.9% yield and has publicly committed to raising the dividend by more than 8% annualized over the next 3 years. With the stock trading near a 52-week low, I think its a great time to a retiree to consider adding this stock to their portfolio.
Brian Feroldi owns shares of Gilead Sciences and Spectra Energy. Selena Maranjian owns shares of Gilead Sciences and Procter & Gamble. Todd Campbell owns shares of Gilead Sciences. The Motley Fool recommends Gilead Sciences, Procter & Gamble, and Spectra Energy. The Motley Fool owns shares of Gilead Sciences and Spectra Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.