Your 50s can be a great decade for investing. Once you turn 50, you're eligible to make "catch up" contributions to your 401(k) and IRA, potentially allowing you to add an extra $6,000 to your 401(k) and $1,000 to your IRA every year. You're also young enough that you can likely remain heavily invested in stocks for their long-term growth potential.
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Still, you don't exactly have several decades of work left to recover from bad investments. As a result, you'll probably want to focus your attention on the stocks of companies with both proven track records of rewarding investors and decent prospects of continuing to do so. These three stocks land in that sweet spot of investments well-matched for the needs of 50-something investors.
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A strong player in human dental and animal health
Patterson Companies (NASDAQ: PDCO) has been around since 1877; it's a strong player in human dental health services and a big distributor of animal-health-related products. With around 140 years of history behind it, Patterson knows how to survive times of war and economic turmoil, which should give you reason to believe it will be around for some time to come.
Patterson currently rewards its shareholders with a $0.24 per share quarterly dividend, and it has regularly raised its payout since it started distributing a cash dividend in 2010. While there are no guarantees that dividend growth will continue, if the company keeps to its typical pattern, investors will see an increase announced in March. With a payout ratio of around 44% of earnings, it has room to continue increasing its dividend as its business grows.
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In addition, while Patterson does carry around $1.2 billion in debt, it has a debt-to-equity ratio of below 1, and a current ratio of almost 2. That relatively low debt-to-equity ratio is a sign that it hasn't over-leveraged itself, and the fairly high current ratio means that it's prepared to cover the bills it has coming due in the near term future.
Patterson trades at around 18 times its expected forward earnings, with an expected annual earnings growth rate of 10% over the next few years. At that level, the market is offering a reasonable, though not a bargain, price for a solid business.
An insurance company that's as solid as a rock
Prudential Financial (NYSE: PRU) has long had the Rock of Gibraltar as its corporate symbol, representing its solid financial position. With more cash and equivalents than debt on its balance sheet, and a total cash hoard of over $49 billion, Prudential still looks set up to handle some downright awful insurable losses. That's its "Rock of Gibraltar" strength showing through.
From a valuation perspective, Prudential is priced right around its book value, and about 10 times its expected forward earnings. That's a reasonable price for an insurance company that's expected to be profitable over the long haul, but where a major catastrophe could always throw it for a shorter-term loop.
Prudential shareholders are currently rewarded with a $0.75 per share per quarter dividend, which is up around 7% from what it paid this time last year. That yields around 2.7% today, and with a payout ratio of around 26% of earnings, Prudential has room to continue increasing its dividend.
An energy pipeline giant that's getting its mojo back
Shares of pipeline giant Kinder Morgan (NYSE: KMI) got shellacked back in late 2015 and early 2016 as it cut its dividend to shore up its balance sheet and avoid a debt-rating downgrade to junk status. The dividend cut enabled it to internally fund much of its growth plan instead of relying so much on capital markets. By the end of 2017, thanks to that prudent financial management, it expects to have its debt rating comfortably back in the investment-grade range.
Before the cut, Kinder Morgan had long been known for its generous dividends. Today's investors only get $0.125 per share per quarter, for a respectable but not outrageous 2.3% yield. Still, the company continues to pour money into its expansion plans, including its long anticipated Canadian oil sands pipeline project, which should enable future dividend growth.
Speaking of that anticipated return to dividend growth, in its 2017 financial forecast, the company said it plans to announce later in 2017 whether it will be able to offer an increase in 2018. While there are no guarantees until a dividend is actually announced, Kinder Morgan has seen the damage that missing investor expectations on dividends can do to its shares. As a result, I believe the odds are pretty good that investors buying today will see a return to dividend growth in 2018.
From a valuation perspective, I recently estimated Kinder Morgan to be worth around $22 per share, right around where it is currently trading. Its debt-to-equity ratio is below 1.2, which is a clear sign that its effort to shore up its balance sheet is working. Investors today are getting a fair price for a cornerstone of our energy infrastructure, along with a very real potential to share in the rewards of its growth.
In your 50s, you can still focus on your future
Patterson, Prudential, and Kinder Morgan all share a few key qualities: reasonable valuations, comfortable balance sheets, and the ability and willingness to reward their investors with dividends. No business' future can be totally known until it unfolds, but each looks capable of continuing to grow and reward their investors. That combination makes them solid companies for investors in their 50s to consider.
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Chuck Saletta owns shares of Kinder Morgan and has the following options positions on it: January 2018 Synthetic Long @ $17.50 and March 2017 Short Strangle @ $20/$24.Chuck also owns shares of Patterson Companies and has the following options positions on it: July 2017 Synthetic Long @ $39 and April 2017 Short Strangle @ $40/$46. Chuck also owns shares of Prudential Financial. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool has a disclosure policy.