When building a retirement portfolio, diversifying across low-risk and high-yield stocks can help investors protect their capital while also satisfying their income needs. Two top stocks in particular can help retirees do just that: Johnson & Johnson (NYSE:JNJ), which can serve as an excellent low-risk option for retired investors, and StoneMor Partners (NYSE:STON) -- a small cap with a big yield.
The healthcare titan
Retirees seeking a safe long-term investment may wish to consider Johnson & Johnson. The 129-year-old company has survived multiple wars, the Great Depression, and the financial crisis -- all the while continuing to serve its customers and build value for its shareholders.
In some ways, Johnson & Johnson is like a healthcare mutual fund, with more than 250 subsidiaries spanning across more than 60 countries. These diverse revenue streams have helped the company successfully navigate all manners of market conditions. And J&J's strong cash flow generation has allowed the company to build a fortress-like balance sheet with about $18 billion in net cash. This financial strength allows the company to fund its massive research and development program, which fuels growth in areas such as its highly profitable pharmaceutical division. In addition, it allows J&J to supplement its organic growth via acquisitions.
Yet while Johnson & Johnson's long track record of success is impressive, ultimately it will be what lies ahead for the company that will determine its investors' returns from this point forward. Fortunately, multiple long-term trends are working in J&J's favor, including a growing global middle class and expanding life expectancies that should both help to boost demand for healthcare services in the decades ahead.
Together, these factors help to make Johnson & Johnson one of the safest stocks available in the market today, and one that's particularly well suited for the low-risk portion of a retiree's diversified portfolio.
The graveyard operator
Retirees seeking a high-yield income source who are willing to live a little more dangerously may wish to take a look at StoneMor Partners. The death-care company is structured as a master limited partnership, which makes it necessary for StoneMor to payout the majority of its cash flow to its unit holders. That, in turn, allows StoneMor to offer investors a sizable distribution yield, currently about 9%.
And as to StoneMor's heightened risk profile, it's not that its business model is particularly risky; operating cemeteries and funeral homes is about as drab as you can get. The investment risk for StoneMor comes more from the company's small-cap status, which, when combined with its somewhat difficult-to-understand financial statements, has made it a target of short-seller attacks in the past. However, StoneMor has recovered from each of these incidents, all the while continuing to deliver a steady stream of rising dividend income to investors.
Unless someone finds the fountain of youth, StoneMor's business should remain ... predictable. I expect StoneMor to continue to do what it does best: purchase cemeteries and funeral homes at favorable prices and then work to improve their operations over time. That should lead to higher dividends and share-price appreciation for its unit holders in the years ahead, making the stock an excellent high-yield income investment for retirees to consider.
Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson and StoneMor Partners. 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.