Please ensure Javascript is enabled for purposes of website accessibility

Top Stocks for Retirees

By Joe Tenebruso – Feb 2, 2016 at 2:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Seeking capital preservation and income generation? Then check out these stocks.

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 (JNJ 0.84%), which can serve as an excellent low-risk option for retired investors, and StoneMor Partners (STON) -- a small cap with a big yield.

Johnson & Johnson has served its customers for more than 100 years. Image source: Johnson & Johnson.

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.

Image source: StoneMor.

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.

STON Dividend Chart

STON Dividend data by YCharts

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Johnson & Johnson Stock Quote
Johnson & Johnson
$166.32 (0.84%) $1.38
StoneMor Partners L.P. Stock Quote
StoneMor Partners L.P.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.