Even in your 70s and beyond, there are great reasons for most investors to own stocks. With a retirement that could last decades, the potential growth that stocks provide can be a powerful inflation fighter. With 10-Year Treasury Bonds yielding a mere 1.8%, many stocks even offer higher income than high quality bonds do. In addition, with the stepped-up tax basis investments get when passed on as part of an estate, stocks can be a great way to pass on money to the next generation as well.
Still, not every stock is appropriate for every 70+ year old investor, particularly if that investor needs to live off of his or her portfolio. If you're in your 70s and reliant on your investments to cover your costs, the types of stocks you want in your portfolio are ones that:
- Produce commonly used products,
- Have balance sheets capable of surviving typical downturns,
- Reward their shareholders with dividends without over-extending themselves, and
- Are valued reasonably in the market for their potential earnings.
With those criteria in mind, here are three companies whose stocks deserve your consideration:
Stock No. 1: Refinery giant
Valero Energy (NYSE:VLO) is the world's largest independent petroleum refiner, and it also markets and distributes the fuel it produces. What makes Valero's business attractive is the fact that as a refiner, it makes its money on the "crack spread" between oil and gasoline prices, rather than based on the price of oil or gas itself. That makes Valero's business less exposed to commodity pricing than an exploration and production company, but it does have to watch its inventory levels to assure it's not stuck with overpriced goods or materials during wild price swings.
From a valuation perspective, Valero trades at around 8 times its anticipated Fiscal Year 2017 earnings, making it reasonably priced for an industry titan without much expected rapid growth ahead of it. From a rewarding shareholders perspective, Valero sports a 4.4% dividend yield, pays out about 27% of its earnings as dividends, and has been regularly increasing its dividend since 2011.
In addition, Valero's balance sheet is solid, sporting a 0.3 debt to equity ratio, more than $3.7 billion in cash, and a current ratio above 2.1. And from a product-necessity perspective, gasoline ranks right up there among the most important products that enables our modern society to move.
Stock No. 2: Insurance titan
Prudential Insurance (NYSE:PRU) is one of America's largest insurance and investment management companies, with over $1 trillion in assets under management. Insurance is one of those products that virtually everyone needs to have, but almost nobody wants to actually use, which can be a very attractive business model to operate in.
From a valuation perspective, Prudential trades at less than 8 times its forward earnings and at about 0.7 times its book value. Those measures make it attractively priced for investors with a decently long term time horizon, despite any near term profit risks that its business may be facing.
Prudential rewards its shareholders with a 3.5% dividend yield while paying out less than 25% of its earnings as dividends. The $0.70 per share per quarter that Prudential pays is up nicely from the $0.58 it paid this time last year, and the company has been regularly raising its dividend since 2009.
Prudential's long term logo is the Rock of Gibraltar, and its balance sheet does a great job of reflecting the rock-solid strength the company tries to project. Its 0.7 debt to equity ratio is reasonable, and its nearly 1.4 current ratio and nearly $26 billion in cash and accrued investment income on its balance sheet indicate that the company remains well positioned to survive, even if it faces well above expected insurance claims.
Stock No. 3: Networking colossus
Cisco Systems (NASDAQ:CSCO) is the ubiquitous computer networking giant. While a high tech company like that may not seem like a traditional choice for a retiree's portfolio, it has a lot going for it that makes it worthy of consideration. Generally recognized as the most powerful company in networking, Cisco touches a large part of the data that travels across the Internet and within companies' private networks as well.
From a valuation perspective, Cisco trades at less than 12 times its anticipated Fiscal Year 2017 earnings, a reasonable price given its expected 10%+ growth over the next few years. Cisco may be the same corporate entity that traded at nosebleed prices during the dot.com bubble, but today's Cisco is available at a much cheaper valuation.
Cisco's 3.6% dividend yield rewards shareholders with solid current income, and its payout ratio below 45% of earnings indicates that it has room to continue increasing its dividend over time as its business grows. In addition, Cisco has increased its dividend at least once a year since it started paying dividends in 2011, establishing itself as a solid provider of direct rewards to investors for the risks they take in investing.
From a balance sheet perspective, Cisco's debt to equity ratio is below 0.5, and its current ratio is above 3.2, indications of a very solid financial footing. In addition, it has over $60 billion in cash and short term investments on its balance sheet, giving it incredible flexibility in how it finances its business and expansion plans.
Stocks that fit a 70+ year old's portfolio
While no investor should rely on stocks for money needed within the next few years, even investors in their 70s and beyond can think about a longer term future for their money. Cisco Systems, Prudential Insurance, and Valero Energy share key characteristics that make them worthy for consideration as part of the stock portion of those seniors' portfolios. With reasonable valuations, decent balance sheets, good track records of rewarding their shareholders, and businesses that produce commonly used products, they are certainly worth a look for any investor with a long term vision for their money.
Chuck Saletta owns shares of Cisco Systems. Chuck's wife owns shares of Valero Energy. The Motley Fool recommends Cisco Systems. 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.