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The 3 Best Stocks to Own in Retirement

By Todd Campbell, Sean Williams, and Steve Symington – Mar 24, 2016 at 11:03AM

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Retirees may be able to worry less about their portfolios if they own these steady-eddy big-cap stocks.

Image source: Pixabay.

Retirees are living longer than ever before, and that means retirees are focusing their portfolios less on slow-growth Treasury bonds and more on stocks so they don't outlive their savings. While stocks can add some punch to a retiree's investment returns, not just any old stock will do. Stocks to own in retirement portfolios should offer the kind of peace of mind that allows retirees to sleep well at night without causing them to worry too much about the market's daily whims and whispers.

For this reason, we asked some of our top Motley Fool contributors to tell us what companies they think could be right to own in retirement. Here are the three stocks they recommend.

Steve Symington: For many retirees, the best options in equities are businesses that allow them to benefit from a combination of stability, modest growth, and steadily rising dividends. And I think you'll be hard-pressed to find a company that better fits that bill than Verizon Communications (VZ 0.92%).

In 2015, the telecommunications giant capped what it rightly described as "strong and balanced results" for the year with a 3.6% year-over-year increase in operating revenue, to $131.6 billion, but it simultaneously returned more than $13.5 billion to shareholders in the form of dividends and share repurchases. Regarding the former, after raising its dividend for the ninth consecutive year last September, Verizon offers a mouthwatering quarterly dividend that yields 4.3% annually as of this writing. And that's with a solid 50% payout ratio as enabled by healthy operating and free cash flow of $38.9 billion and $18.8 billion last year, respectively.

What's more, Verizon positioned itself for the future by investing roughly $28 billion last year in spectrum licenses and capital to increase network capacity, and it has already begun field testing 5G networks -- which could enable roughly 50 times the throughput of 4G LTE -- with the intention of launching some level of commercial deployment next year.

Considering Verizon already boasts the country's best-performing network (as measured by RootMetrics) and arguably the strongest brand and financial position of any other telecom giant, this should serve to further solidify its industry leadership, as well as its status as one of the best stocks to own in retirement.

Image source: Aflac.

Sean Williams: If you're looking for a great retirement stock you can sit on for years, or decades, I'd suggest retirees give strong consideration to supplemental health insurance and life insurance provider Aflac (AFL -0.07%).

In general, insurers have a formula for success that works. Periods of higher-than-average claims come about from time to time, and this gives insurers a viable reason to increase premiums in order to restore profitability (if it should be lost) and to replenish their cash float. However, since catastrophes, or higher-than-normal claim periods, are commonplace among insurers, the industry can still pass along premium price hikes during lower-than-normal claims periods with the justification that they're simply preparing for the next wave of claims. It's something Aflac and its peers have done for decades to maintain strong profitability during even the toughest of times. For instance, Aflac's worst performance over the past decade came in 2008, when it reported "just' $1.25 billion in annual net income.

Aflac also has a number of avenues through which to generate revenue and profits. It's known as a giant in underwriting supplemental health policies in the U.S., and life insurance policies in Japan, where it does about three-quarters of its business. However, Aflac's push into newer products, such as cancer policies that help families cope with the out-of-pocket costs of battling cancer, could provide double-digit percentage growth opportunities moving forward.

Another important point to consider is that insurers like Aflac invest their cash float into short-term, safe, interest-bearing vehicles. Even with the latest rate hike from the Federal Reserve, we're still near a record low in terms of yields on short-term investing instruments. Presumably, yields are going to return to normal at some point down the road, and this should equate to a welcome uptick in net investment income for Aflac.

As icing on the cake, Aflac is also working on a 33-year streak of increasing its dividend, placing it among a rare group of dividend stalwarts known as Dividend Aristocrats. Currently sporting a 2.6% yield and a single-digit forward P/E, Aflac is a company deserving of serious consideration for today's retirees.

Todd Campbell: Investing for retirement often means investing for income and safety. Because of that, investors should probably avoid upstarts and focus on tried-and-true leaders like Pfizer (PFE -1.04%).

After years of weakness tied to digesting the loss of patent protection on its best-selling drug, Pfizer is at the beginning of what I believe will be multi-year period of growth.

Why? The impact of patent expiration on Lipitor is just about done, and that should allow the company to start growing its top and bottom lines again. Pfizer's growth will come both from internal efforts and M&A. New drugs like the cancer drug Ibrance and the autoimmune drug Xeljanz could become billion-dollar blockbusters, and the pipeline has a bunch of intriguing therapies that could someday be top sellers, too. Among the most intriguing of these drugs in development are a cholesterol-fighting medicine and a checkpoint inhibitor that could help revolutionize heart disease and cancer treatment.

Additionally, Pfizer spent $17 billion last year to catapult itself to the front of the wave in biosimilars. Historically, billion-dollar biologics have been immune to the threat of generics, but biosimilars are fast approaching, and Pfizer thinks the market for them could hit $20 billion in 2020.

Pfizer is a $50 billion revenue company with a well-funded balance sheet and a very attractive 4% dividend yield, all of which make it one of my favorite stocks for retirees. 

Sean Williams has no position in any stocks mentioned. Steve Symington has no position in any stocks mentioned. Todd Campbell has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool recommends Aflac. 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.

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