When buying stocks after retirement, there are a few things to keep in mind. Most retirees' investing objectives are to preserve capital by not taking on too much risk while also creating an income stream big enough to cover expenses. Inflation is also a concern, as it's important to look for stocks with a strong track record of earnings growth and dividend increases. With those things in mind, here are five stocks that our analysts recommend for retirees' portfolios.
Todd Campbell: A long slide in sales and earnings following high-profile patent expirations has kept dividend investors on the sidelines in Eli Lilly (NYSE:LLY), but as patent headwinds dissipate and new drugs make it to market, the company could be poised for recovery.
Although the loss of patent protection on Cymbalta caused the company's sales to drop from $24 billion to less than $20 billion, it also forced a restructuring that's cut its spending to $11.3 billion from $13.7 billion in 2011.
Those cost cuts may soon offer margin-friendly leverage as sales begin climbing due to the launch of the new cancer drug Cyramza and the diabetes drugs Jardiance and Trulicity. Thanks to those drugs, Eli Lilly believes sales and non-GAAP EPS will be at least $19.7 billion and $3.20, respectively, this year. If so, that would mark the first annual increase since Cymbalta's patent expired.
A return to top- and bottom-line growth should offer up more flexibility that the company can eventually use to bump up its dividend -- something that's been a bit tougher to do over the past few years -- and that's why I believe Eli Lilly is a name retirees ought to consider buying.
Selena Maranjian: Steelmaker Nucor (NYSE:NUE) got my attention many years ago in business school, when I learned that it had a no-layoff policy. Even today, its website notes, "We haven't laid an employee off due to lack of work in over 30 years." That hasn't hurt the company much, either, as its stock has averaged annual gains of 13.3% over the past 30 years (and 6.8% over the past five).
Nucor, one of the best managed and most efficient steel companies and also one of the largest steel recyclers in the U.S., has faced some headwinds in recent years, as have its peers. Challenges have included falling prices as well as increased foreign competition, which has put pressure on sales. Nevertheless, in its last quarter, the company posted results that exceeded expectations, with operating rates rising -- in part due to lower prices for energy and the scrap metal it recycles. Its cash from operations has been growing over the past few years, too, while the company has invested billions to improve its competitive position via more efficient production processes.
The auto industry has been moving a lot of cars off lots in recent years, boosting Nucor's business and demand for steel in nonresidential construction is growing. The low price of oil has reduced drilling activity, though, and along with it demand for steel and pipes.
Nucor is a good fit for a retiree portfolio because its business, though cyclical, has staying power. Another plus for retirees investing in Nucor is its dividend, which recently yielded a solid 3.2%. With a recent price-to-earnings ratio of 23, well below its five-year average, and a dividend that recently yielded 3.1%, Nucor stock is appealingly priced -- both for retirees and younger investors.
Brian Stoffel: It's pretty clear that Internet connectivity is here to stay, and now that Verizon (NYSE: VZ) now owns all of Verizon Wireless -- which it bought out from Vodafone -- it has entrenched itself to benefit from this trend. This, combined with the company's investment in -- and double-digit revenue growth from -- FiOS means that it has several irons in the fire to keep America connected.
One of the most important things for retirees to look for is a solid dividend payer in a business that is likely to be around for decades to come. Verizon fits that bill. Currently, the stock yields 4.6% -- more than double the S&P 500's average of 1.9%.
But more importantly, the dividend is safe and has room to grow moving forward. Over the past 12 months, Verizon has generated free cash flow of almost $18 billion. It has used less than half of that to pay its dividend. That suggests to me that its dividend is safe to rely on for the foreseeable future.
And while the company only averages a 3% bump in its dividend per year, it could raise that rate significantly. This would likely happen once management feels like the need for intense capital investment subsides, and it can rely on its existing infrastructure for steady revenue growth.
Matt Frankel: As Brian correctly pointed out, retirees should look for solid dividend-paying stocks that will be around for years to come. One of my favorite stocks definitely fits that description: Realty Income Corporation (NYSE:O).
Realty Income has a straightforward business model. It acquires freestanding retail properties occupied by companies with low chances of relocation or bankruptcy -- and the income from these properties is predictable and secure. Tenants sign long-term net leases (15 years or so) with annual rent increases built right in. All Realty Income needs to do is collect the rent, which it passes along to shareholders.
Realty Income has a 4.7% dividend yield as of this writing, and pays on a monthly basis -- also a nice perk for retirees. The company has increased its dividend 81 times since going public in 1994 at an average rate of 5% per year, which could help retirees keep up with inflation. And the stock has produced consistent market-beating total returns averaging 16.4% per year.
In a nutshell, Realty Income could be a great stock for retirees who want stable, growing income as well as the potential for significant price appreciation.
Joe Tenebruso: Retirees often turn to the telecom sector for low-risk, income-producing stocks, as the industry tends to lend itself to subscription-based revenue streams and stable cash flows. Telecom leaders Verizon and AT&T (NYSE: T) excel is this regard, and their sizable dividends are often an attractive and dependable source of income for many retirees.
As Brian pointed out, Verizon appears well positioned to grow its dividend in the years ahead. Yet this is one area where AT&T has underwhelmed. While it's true that AT&T has increased its dividend for 31 consecutive years -- a truly impressive feat -- recent dividend raises have averaged only about 2% per year. At that rate, future dividend increases may not be enough to keep pace with inflation. Fortunately, this may be about to change.
AT&T's recently approved acquisition of DirecTV is a game changer that will allow the combined company to offer attractive bundles of wireless phone, TV, and broadband Internet services. In addition, AT&T is acquiring DirecTV's fast-growing TV business in Latin America, which should add another exciting element of growth to the telecom giant. These new revenue streams could help recharge AT&T's dividend growth rates in the years ahead, making the telecom titan an excellent investment for retirees to consider.
Brian Stoffel, Todd Campbell, and Joe Tenebruso have no position in any stocks mentioned. Matthew Frankel owns shares of AT&T and Realty Income. Selena Maranjian owns shares of Nucor, Realty Income, and Verizon Communications. The Motley Fool recommends Nucor and Verizon Communications. 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.