Putting together a portfolio of stocks for your retirement years has become more complicated. It used to be that you could just select a few steady, dividend-paying giants from the Dow Jones Industrial Average, and that might be enough. But that’s a risky approach as we enter the ninth year of the bull market with the Dow and other indexes setting new record highs. If economic growth falls short of the heightened expectations caused by the election of Donald Trump as president, stock prices could drop sharply. And rising interest rates could lure investors away from dividend-paying blue chips.
To help you pick the best stocks for your retirement portfolio now, whether you are already retired or approaching retirement, Bottom Line Personal spoke with investment manager Kelley Wright…
The New Retirement Stocks
The best stocks for retirement still are the ones that let you sleep well at night. That means the companies are industry leaders with highly profitable products and services…ample free cash flow to pay a consistent dividend…rock-solid balance sheets that can weather rough economic times…and high industry barriers that discourage new competitors.
There are a few dozen stocks that meet these criteria. But in the current environment, I’m also looking for three other elements…
Strong dividend growth. A company must be able to raise its dividend regularly so that its stock stays competitive with other sources of income, such as bonds, as interest rates rise. I generally look for companies that have raised their dividends by an average of 10% or more per year over the past five years.
Attractive share price. One of the best clues for judging a dividend-paying stock is to compare its yield with its average yield of the past decade. If the current yield is close to its high over that period, it’s typically a bargain.
Potential for growth. I look for clear catalysts that can drive earnings growth over the next decade or more.
My Favorite Retirement Stocks Now
To create a great retiree stock portfolio, you could invest in all of the following nine stocks. Or you could add just a few to your portfolio to increase stability and reliable income and your chance for solid returns.
Boeing (BA). About 70% of Boeing’s business is manufacturing commercial airplanes, and it has a backlog of more than 5,600 on order. That means years of reliable profits. The other 30% of revenue comes from military and government aircraft manufacturing. Boeing’s stock suffered a mild setback when Trump tweeted a threat to cancel Boeing’s contract to build the new Air Force One plane because of cost overruns. But given Trump’s aggressive plan to shore up US military strength, and Air Force planes specifically, Boeing is likely to benefit during his administration.
Eaton Corp. (ETN). Eaton has transitioned from an auto-parts supplier to a global giant in power-management equipment. The company, which is in 175 countries, has been particularly adept at developing new technologies for fast-growing markets. That includes hydraulic products for wind-power companies and highly efficient light-emitting diode (LED) systems for municipal street lamps and office buildings.
Lowe’s Companies (LOW). The second-largest home-improvement retailer in the world, with more than 2,300 stores, often is overshadowed by The Home Depot. But I often prefer the number-two company in an industry because it is forced to be more innovative and has more potential for growth and its stock often trades at better valuations. And although the home-improvement market can be very volatile, Lowe’s has been able to raise its dividend 55 years in a row.
Omnicom Group (OMC). This is one of the largest advertising companies in the world. It has offices in more than 100 countries and owns the legendary individual agencies BBDO and DDB. It is benefiting from the massive shift from analog advertising, such as print, TV and billboards, to digital advertising as Fortune 500 clients need to reach consumers through such means as e-mail and social media.
Philip Morris International (PM). Many investors shun any company involved in tobacco. But for those who don’t mind investing in it, this tobacco giant, spun off in 2008 from Altria Group, is the one to choose. It will see growth in emerging markets for its top brands, such as Marlboro, for decades. Even as cigarette demand declines in developed nations, Philip Morris is replacing lost revenue with reduced-risk products such as iQOS, a rechargeable smoking device that, unlike other e-cigarettes, heats tubes of real tobacco to create a vapor. It already is being sold in about 20 countries.
Texas Instruments (TXN). This venerable tech company has become the world’s largest maker of basic, analog semiconductor chips that process sound and power in electronic products. Although not the most exciting technology, it is immensely profitable and steady because once electronics manufacturers select an analog chip to use in a device, they tend to stick with it through the entire product cycle of the device. The future for analog chips looks strong because they’re used in almost every kind of new “smart” device that links with the Internet—devices ranging from door locks to high-tech clothing.
TJX Companies (TJX). The nation’s largest off-price retailer of brand-name clothing and furnishings, TJX operates more than 2,600 stores under its T.J. Maxx, Marshalls and HomeGoods brands. In the volatile apparel industry, TJX has been remarkably consistent, able to raise its dividend every year for the past two decades. It’s also one of the few brick-and-mortar apparel retailers that is Amazon-proof. Each of the chain’s locations offers a unique product selection, and going through racks of trendy clothing to discover bargains is an emotional shopping experience that can’t be duplicated online.
T. Rowe Price (TROW). This company has one of the stronger brand names among financial-asset managers, overseeing about $800 billion in US and foreign stock, bond and money-market mutual funds. Although the rise of passively managed exchange-traded funds will continue to challenge the asset-management business, T. Rowe Price is the best-positioned to deal with this trend because its actively managed funds produce such strong returns. Over the past decade, about 90% of its funds outperformed their category averages. T. Rowe’s reputation for conservative investing makes it particularly attractive to retirement-focused customers. Among the fastest-growing and most profitable parts of its business are retirement-oriented target-date funds and variable annuities.
Union Pacific (UNP). Railroads are wonderful long-term businesses because it’s almost impossible for competitors to encroach on their established territories. This 154-year-old behemoth has 32,000 miles of track crisscrossing 23 states from the Pacific to the Mississippi. It is uniquely positioned to help connect US population centers to all four of our biggest trading partners—Canada, China, Japan and Mexico. Even if the Trump administration instigates trade wars, Union Pacific hauls such a diverse mix of routes and cargo—from US military equipment to new automobiles to coal from the giant Powder River Basin—that its long-term profitability is hard to question.