For many Americans, retirement represents the finish line. The point at which they can put their feet up, throw their alarm clock out, and not have a care in the world. But for many, this dream ignores two very key components: increasing life expectancies and a potentially insufficient nest egg.
Retire from your career, not from investing
Since 1970, the average life expectancy in the U.S. has increased by eight years to 78.8 years, according to the Centers for Disease Control and Prevention. It means today's retirees can often expect that they'll need their retirement money to last in the neighborhood of one decade longer than their grandparents' generation did. Without the proper planning, they could run out of money. By a similar token, some seniors are entering retirement with far too little saved.
Retirement might mean stepping away from your lifetime career, but it doesn't mean retiring from investing. Continuing to invest in the stock market during your golden years can allow you an opportunity to increase your wealth and ensure you have enough money to comfortably last throughout your retirement.
Of course, how you invest once you've retired tends to be notably different from how you invested when you were working. Capital preservation and income generation tend to take on much greater importance when retired. Nevertheless, you can still find high-quality stocks that can give you a good shot at capital appreciation, while pocketing an above-average dividend.
Here are four stocks to keep you invested after retirement.
Rather than playing the guessing game with the somewhat volatile healthcare sector, a company that jumps to the forefront for retirees is HCP (NYSE:HCP), a real estate investment trust (REIT) with a focus on acquiring and leasing buildings and offices in the healthcare space. It has a particular focus on life-science buildings devoted to drug development, senior housing facilities, and medical offices.
Why HCP? It's a simple numbers game that should put investors on the winning side. The U.S. Census Bureau anticipates that the 65-and-over crowd will nearly double, from 48 million to 88 million, between 2015 and 2050. That's 40 million extra seniors that could need some form of quality of care assistance in their future, ranging from surgical procedures to medicines and both short- and long-term care. HCP, as an owner and lessee of medical properties, should have little issue finding tenants and charging rents that keep pace or outpace the inflation rate.
Plus, since HCP is structured as a REIT, which gives it tax benefits in return for paying out at least 90% of its profits in the form of a dividend to shareholders, you're bound to get a very handsome annual payout. HCP shareholders are currently collecting 4.7% annually on their investment, which is more than double the yield of the S&P 500.
Another large-cap company that tends to fly under the radar but could be perfect for retired folks is payroll-processing service giant Paychex (NASDAQ:PAYX). In particular, Paychex brings two simple advantages to the table.
First, like HCP, Paychex should be able to take advantage of the numbers game. It's been shown that the U.S. economy tends to grow over time. Yes, recessions are an inevitable part of the economic cycle, too, but over time we tend to see a steady increase in U.S. GDP and the aggregate number of employed Americans. As a company that specializes in being the payroll processing service for businesses of all sizes, this long-term trend works in its favor by steadily increasing the number of businesses utilizing its services, and presumably giving it decent pricing power for its services.
The other factor worth monitoring is that we're coming off historically low interest rates, which pushed short-term yields way down. Payroll processors typically receive the cash that's to be paid to employees days in advance, and they invest this pooled money into short-term, very safe interest-bearing assets. As the Federal Reserve moves forward with its tightening policy, interest rates and yields are rising, which should lead to higher interest income for a company like Paychex.
All told, retirees are currently privy to a 3.5% yield with Paychex.
The utility sector is typically a great investment source for retirees, because it gives them a moat of companies that sell a basic-need good, like electricity or water. In particular, NextEra Energy (NYSE:NEE) is a company that retired folks might want to give a serious look.
While most electric utilities offer little differentiation from one another, NextEra Energy is in a class of its own thanks to its reliance on alternative energies for electricity generation. Last year, nearly half (49%) of its electricity was generated using natural gas, 26% came from nuclear power, and a whopping 20% was derived from wind power. In 2015, no company generated more power from wind or solar than NextEra Energy. The reason this investment in alternative and renewable energies is so important is that it'll lower the company's long-term costs, as well as that of its customers, putting it on the leading edge of innovation in the utility sector.
Just as important, NextEra Energy is predominantly a regulated utility, meaning it requires the OK of state regulatory commissions before it can increase rates on consumers. While that might sound like a nuisance, it's actually good news, since it keeps the company minimally exposed to wholesale electricity prices. The result is very predictable cash flow and profits.
NextEra is currently yielding 2.8%, which easily tops the broad-market S&P 500.
A final stock that could keep retirees in the game is the leading appliance manufacturer in the world, Whirlpool (NYSE:WHR). Like the companies already discussed, broad trends are a big reason Whirlpool could be attractive to retirees.
To begin with, a growing population and a steady increase in domestic and global housing offers what should be a steady stream of opportunities for Whirlpool to get its products in new and remodeled homes. Yes, Whirlpool's business is intricately tied to that of the global economy, but as noted, the global economy tends to increase in size over the long run. This suggests that long-term investors should benefit from Whirlpool's innovation, a growing global population, and an expanding global housing market.
Whirlpool also has a multi-year or multi-decade opportunity to expand into new markets. The North American market will remain critical to Whirlpool's success, but acquisitions throughout Asia over the past couple of years, as an example, provides a channel to reach a burgeoning middle-class of new homeowners. Not shockingly, sales growth in Asia came in at 16% on a constant currency basis in the first quarter, and it could remain in the double-digits for some time to come. Whirlpool has a similar opportunity in the Middle East and Africa.
Whirlpool's 2.3% yield may not look like much now, but considering its projected cash flow growth in the years to come, I'd anticipate it'll head considerably higher.