Seniors in their 70s who've crossed the proverbial retirement "finish line" may have thought their hard work had ended, but that may be far from the truth. Seniors are living longer, fuller lives than ever, which means there's a growing chance they'll need to continue building upon their nest egg and investing for their future.
As you might imagine, the idea of investing in the stock market may not be appetizing to some folks in their 70s, especially with the Great Recession, and the subsequent 50%+ drop in all three U.S. stock indexes, still fresh in their minds. But historically, the stock market is the greatest creator of wealth, averaging a return of 7% annually. These figures are hard to ignore when trying to make your nest egg stretch for as long as possible.
Three perfect stocks for retirees in their 70s to consider buying
When seniors reach their golden years, they're rightfully focused on generating income while looking to minimize their risk of capital loss. Yet within the stock market there are a handful of companies that appear to perfectly fit what retirees in their 70s are likely looking for in an investment. Here are three potentially perfect stocks for retirees in their 70s to consider buying.
How about killing three birds with one stone here with telecom giant AT&T (NYSE:T), which offers low volatility, steady growth, and a market-thumping dividend yield.
If seniors are anything like Warren Buffett, they don't want complex, hard-to-understand investments. Instead, they want solid business models that simply work -- and that's what you get with AT&T. It's one of the two kingpins in wireless telecom service, and it's been voted as tops in customer engagement and loyalty once again in 2016 by research firm Brand Keys. Its latest quarter featured a low postpaid churn rate of 1.1%, which was stable from the prior-year period.
What makes AT&T such an attractive long-term investment is the costly barrier to entry in the telecom space. Really, we're talking about four big names in this space -- Verizon, AT&T, Sprint, and T-Mobile -- and there's quite a gap in marketing budget, customer loyalty, and next-generation wireless infrastructure between the kingpins Verizon/AT&T and Sprint/T-Mobile. This high barrier to entry in the wireless space allows AT&T to exploit its strong pricing power and reap the rewards of consumers' demand for data.
More recently, the acquisition of DIRECTV is going to give AT&T a new platform to integrate its broadband, satellite television, and wireless offerings under one umbrella.
Yielding a whopping 5%, and with its shares only about a third as volatile as the S&P 500, retirees in their 70s would be wise to consider AT&T for their investment portfolio.
Another possible source of slow but steady long-term growth highlighted by an above-average dividend yield and below-average volatility is electric utility Duke Energy (NYSE:DUK), which serves about 7.4 million electric customers located in the Southeast and Midwestern U.S.
Why Duke Energy? Two reasons in particular. First, we're talking about a basic-need good: electricity. If you own a home or rent a home, you're going to need electricity to power it. Electric utilities are fully aware of this, which means over the long run the price of electricity tends to rise (as do most basic goods and services). The implication would be that profitability for electric utilities like Duke will rise as well.
The second component is that Duke's electric utilities are predominantly regulated. On one hand, this means Duke needs to submit requests for price increases to state regulatory committees and justify its request. Then again, regulation of the market removes the uncertainties associated with the wholesale electric market. What this means for investors is a very predictable level of cash flow that varies minimally one year to the next.
Additionally, Duke is working on boosting its renewable energy portfolio, comprised of solar and wind generation. These projects may seem costly now, but as Duke's renewables portfolio grows in importance, its long-term costs could actually fall.
Duke is currently paying its shareholders 4.3% annually, and its shares are only about as fifth as volatile as the broader market based on its beta of 0.2.
Lastly, seniors looking for long-term share price appreciation and healthy near-term income would be smart to give real estate investment trust HCP (NYSE:HCP) a closer inspection.
HCP is a company that specializes in purchasing healthcare-based properties and leasing them for extended periods of time. Occasionally, HCP also sells these properties if they've appreciated in value. The company's business model is designed to take advantage of the outpaced growth offered by the medical field, as well as by an aging American population that's liable to demand more care for longer periods of time in the coming decades.
At the moment, HCP has a number of assets in its portfolio, including senior housing, skilled-nursing facilities, medical office buildings, hospitals, and life science offices. However, HCP is in the process of spinning off its HCR ManorCare assets (the skilled-nursing facilities) into a separate REIT, which my Foolish colleague Matthew Frankel anticipates will unlock shareholder value. More importantly, it'll leave HCP with a portfolio that's heavily reliant on senior housing, life science, and medical office buildings, which have been a seemingly safer growth bet than skilled nursing care.
It's also worth mentioning that while most traditional REIT dividends are taxable, a portion of your dividend may be viewed as a nontaxable return of income based on how HCP recognizes deprecation and the accelerated depreciation of assets. This could allow seniors to keep more of what's divvied out to them.
HCP has boosted its payout in 31 straight years and is the only REIT among the elite Dividend Aristocrat club. Its current yield of 7%, and its exceptionally low volatility, make it a stock worthy of retirees' consideration.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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