For many people, the prospect of putting money to work in stocks after they retire sounds daunting. After all, individual stocks tend to be more volatile -- both as they climb and fall -- than "safer" investments like bonds or mutual funds. But for opportunistic investors who know where to look, stocks can be a lucrative way to make the most of your retirement savings without keeping you up at night.
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So we asked three top Motley Fool investors to each discuss a stock they believe every retiree should consider buying. Read on to learn why they picked Nike (NYSE: NKE), Omega Healthcare Investors (NYSE: OHI), and Ford (NYSE: F).
A growing global leader
Steve Symington (Nike): If you're looking for a growing business touting global industry leadership and a propensity for generous capital returns, it's hard to find one better qualified than Nike. As of its latest quarterly report in late June, Nike expects the coming fiscal year's revenue to climb in the mid- to high-single-digit percent range at constant currency, which should put annual sales at just above $36 billion. But the company also maintains goals of growing that revenue base to $50 billion by fiscal 2020, growing earnings in the mid-teens, and increasing returns on invested capital in the range of high 20% to low 30%. On top of that, Nike offers a healthy dividend yielding 1.3% annually as of this writing, and still has roughly $7.6 billion remaining under a four-year $12 billion share repurchase program approved in late 2015.
That said, Nike stock also plunged nearly 5% on Friday after footwear retailer Foot Locker (NYSE: FL) fell woefully short of Wall Street's second-quarter revenue and profit expectations. To blame, according to Foot Locker management, was a combination of limited availability of new products, a lack of innovative footwear offerings of late, and weak sales of "recent top styles" that impacted the broader business.
This certainly looks bad for Nike at first glance. But in my opinion, these are decidedly short-term concerns that should have little to no impact on Nike's global growth story over the long run. And I think patient retirees -- or any investor, for that matter -- would do well to take advantage of the pullback to open or add to a position in Nike stock.
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A high yield and rising demand
Cory Renauer (Omega Healthcare Investors Inc.): Buying shares of this stock might be the best way to invest in a type of real estate with rising demand. Omega Healthcare Investors is a real estate investment trust that owns 939 skilled-nursing and long-term care facilities across 42 states. Most of the patients in these facilities are older adults that make up the fastest-growing demographic in America and the United Kingdom, where it owns another 53 properties.
While you could invest directly into Ciena Healthcare or another one of about 75 companies that operate Omega's facilities, but shifting Medicaid and Medicare policies make their cash flows hard to predict. Triple net leases make this REIT's income stream steady as a rock, as long as the operators can pay their rent.
Retirees will be glad to know Omega Healthcare delivers nearly all of the predictable profits it generates to shareholders as a dividend, which it recently raised for the 20th quarter in a row to $0.64 per share. At recent prices, the stock offers a tempting 8.06% yield or higher if the REIT continues its payout-raising streak.
Whenever you see a stock offering such a high yield, you want to make sure it can maintain such a big payout. This year, Omega expects to generate adjusted funds from operations between $3.42 and $3.44 per share. With its dividend currently set at around 75% of the lower end of that expectation, I think we can reasonably expect the payout to continue rising each quarter for the foreseeable future.
This cheap stock will reward you for patience
Why buy Ford right after it reported a 7.5% drop in sales for July? Why buy it with sales for all of last quarter rising less than 1%, and profits up less than 4%? Because these declines were to be expected now that the cyclical auto industry has peaked, and begun sliding into its trough. But the same cycle that is sending Ford stock down today will eventually reverse, and Ford will begin growing again.
How much will Ford grow? Analysts surveyed by S&P Global Market Intelligence believe that over the next five years, Ford will grow its earnings about 8.5% per year from current levels. With Ford stock selling for just 11.3 times trailing earnings, that 8.5% growth rate, when paired with Ford's market-crushing 5.6% dividend yield, results in a total return ratio (P/E, divided by the sum of earnings growth and dividend yield) of just 0.8 -- 20% cheaper than the 1.0 ratio that indicates a stock is cheap enough to buy.
Another indication that Ford is cheap, and worth considering buying, is the company's incredible cash production. Over the past year, Ford has churned out $10.8 billion in positive free cash flow -- nearly three times its reported "net income" of $3.8 billion. At $42.2 billion in market capitalization, Ford stock sells for less than four times free cash flow. Although it's likely that, as the automotive downturn progresses, this cash production will shrink, if it doesn't shrink too much, Ford should be able to generate enough cash to equal its entire market capitalization today in just a few years' time.
Any retiree with the patience to sit around, cash the dividend checks, and wait for that to happen should be well rewarded.
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Cory Renauer owns shares of Omega Healthcare Investors. Rich Smith has no position in any stocks mentioned. Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Ford and Nike. The Motley Fool has a disclosure policy.