The Best Stocks for Retirees

By Markets Fool.com

After retirement, investment priorities change a little bit. You don't care as much about growth as you do about income. And you don't care as much about your investments being exciting as much as you care about stability and consistency, and keeping up with inflation.

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Source: 401kcalculator.org via flickr.

Here are three excellent examples of great retirement investments that can produce income and growth, while allowing you to sleep at night knowing your money is secure.

Look toward the aristocrats
The "Dividend Aristocrats" are a group of stocks that have increased their dividends for at least 25 consecutive years. There is no shortage to choose from.

While these stocks don't always have the highest dividend yields, a growing income stream can be an excellent asset to a retirement portfolio. For example, Johnson & Johnson pays an annual yield of about 2.7%, but has raised its dividend by an average of more than 11% per year over the past two decades. This should easily help your portfolio outpace inflation, and then some, as the years pass.

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I have a few favorite stocks in this class. For example, AT&T is an excellent option because of its high 5.5% dividend yield and 29-year track record of dividend increases. Another favorite is Procter & Gamble , which has increased its dividend every year for nearly six decades and has produced an 11.2% average annual return over the past two decades, handily beating the S&P 500.

PG Total Return Price Chart

Real estate can produce excellent growth and steady income
Now, when I say "real estate," I don't mean buying investment properties to rent out. This can indeed be lucrative, but is often more trouble than it's worth, especially for retirees.

Instead, I'm talking about real estate investment trusts, or REITs, that invest in properties. Not only do these often have excellent dividends and the potential for growth, but they also have a level of stability rarely seen in such high-paying stocks.

There are plenty of solid REITs, but my hands-down favorite is Realty Income, which invests in commercial properties. The trust maintains an extremely high occupancy rate (currently 98.3%), and tenants sign "net leases" with lease terms of 15 years or more and annual rent increases agreed upon in advance.

These leases require tenants to pay costs such as property taxes, insurance, and building maintenance, thereby eliminating the uncertain expenses associated with owning property. All Realty Income has to do is collect a rent check. The stock currently yields 4.5%, and Realty Income has raised its dividend 77 times in its 20-year history as a public company. It also provides monthly dividend payments, which makes it a great choice for retired investors who want a frequent income stream.

On the residential side, a REIT such asEquity Residential or Avalon Bay , which own apartment buildings in desirable areas, can be an excellent option as well. REITs like these can take advantage of certain high-growth and high barrier-to-entry markets like New York City and Washington, D.C., which can be prohibitively expensive to individual investors.

However, REITs that invest in mortgages, not properties, are not good choices for retirees. These stocks have very high yields, but are also quite sensitive to economic factors such as rising interest rates, and can be very volatile.

How much of your portfolio should be in stocks, anyway?
This is a common question, and one that has many answers. Some experts take a conservative approach, recommending retirees keep just a small percentage, say 25%, of their portfolio in stock and the rest in fixed-income investments.

However, I tend to side with those who advocate a larger percentage (50%-60%) of retirement assets in stocks. With interest rates as low as they are, bonds and CDs make poor long-term investments, and bonds especially can lose much of their value once rates rise. With people living longer, it's important to try to produce some growth in your portfolio to make sure your money lasts as long as you do.

A common mistake investors make is equating the word "stocks" with "risk," but it doesn't necessarily have to be that way. A well-constructed stock portfolio can give you income, growth, and peace of mind for decades to come.

The article The Best Stocks for Retirees originally appeared on Fool.com.

Matthew Frankel owns shares of AT&T and Realty Income. The Motley Fool recommends Johnson & Johnson and Procter & Gamble. The Motley Fool owns shares of Johnson & Johnson. 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.