As we approach and enter retirement, our investments styles tend to change at least a little. Whereas before we might have been willing to plunk money in a somewhat risky stock, we now have a greater interest in preserving our capital. After all, we have less time left to wait for a recovery and fewer or no more years of earning more income for new investments. Thus, seemingly safer-than-average companies can more suitable investments -- especially if they deliver dividend income.
Here are three such contenders for your portfolio.
Oil giant ConocoPhillips (COP -0.67%) may be down these days, but don't count it out. Its stock has grown by an annual average of about 11% over the past 30 years, but the past year has been a tough one, with the plunging price of oil: the company's shares have fallen by more than 30%. That presents a buying opportunity for long-term believers, though -- who can collect a dividend that recently yielded a fat 7.2%.
In its third quarter, the company posted a loss, despite being on track to exceed its production goals for the full year. CEO Ryan Lance noted, "We are accelerating actions to position our company for low and volatile prices, while improving the underlying performance of the business," adding, "We are on track to deliver seven major project start-ups ... [are] dramatically lowering our cost structure ... [and are becoming] more flexible and resilient for the future."
Management has also pointed to a host of characteristics the company has that can help it prosper in a more volatile price environment. These include a low cost of supply, long-lived projects, flexible investment options, and a strong balance sheet. Among other tactics, it's reducing deepwater drilling while spending more on more profitable North American "unconventional" projects, such as shale fields.
One promising investment for retirees to consider is a company that has been making a lot of money off retirees. HCP (PEAK 0.11%) is a healthcare-focused REIT (real estate investment trust) and one with an impressive record of 30 years of uninterrupted dividends and annual dividend increases. It specializes in medical offices, laboratories, senior living communities, nursing facilities, and hospitals. As it explains, "We acquire, develop, lease, sell and manage healthcare real estate and we are a capital partner to the leading healthcare providers."
With a recent dividend yield of 6.3% and average annual returns of about 11% over the past 20 years, HCP is likely to keep growing, thanks to simple demographic factors. As our population grows and ages, it will need more and more of the kinds of buildings in HCP's geographically diversified portfolio.
There are a few concerns, though, such as the likelihood of rising interest rates in coming years, that can put pressure on profits. HCP has faced that before, though, and remained healthy. Another issue is the changing healthcare landscape, especially regarding Medicare reimbursements. But that headwind may be offset by the tailwinds of rising drug prices as well as continued and growing demand for senior housing.
Companies in the business of renting storage units to people are rather appealing. For one thing, they don't need to employ lots of employees, and much of the time, with relatively little effort, rent checks arrive relatively reliably. It's not quite that simple, of course, but solid profit margins can be earned, and a compelling contender in this arena is Public Storage (PSA -0.60%), with a market value topping $40 billion and a dividend that recently yielded 2.75%. Its net profit margins recently topped 40%.
Public Storage is a REIT that buys, develops, and operates self-storage businesses. Its portfolio recently featured 2,266 facilities in 38 states -- plus another 217 in Europe. And on top of that, it owns a 42% stake in PS Business Parks, specializing in commercial real estate. Management is intent on growing the business and rewarding shareholders. Free cash flow has been growing robustly -- up 8% year over year in fiscal 2014 and averaging more than 10% annual growth over the past decade, and the company's dividend has more than doubled over the past five years.
The only problem is that Public Storage's stock isn't a screaming bargain right now. In fact, it seems overvalued, with a price-to-earnings ratio near 40. That's not far from its five-year average, though, as many companies with superior business characteristics often command premium prices. Its shares might reward long-term investors -- but for best results, wait for a pullback and a greater margin of safety.