Investment priorities naturally evolve as we age. For investors in their 70s, stability and income should be prioritized over growth and capital appreciation potential. That's why companies like National Grid (NYSE: NGG), McCormick (NYSE: MKC), and Johnson & Johnson (NYSE: JNJ) are an ideal fit for this age group.
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A rock-solid utility
Stability and income are two words that describe National Grid to a T. This utility own nearly all of the electricity and gas lines in the U.K. as well as a handful of transmission assets in several northeastern states.
What sets National Grid apart from most other utilities is that the company doesn't focus on producing the power itself. Instead, National Grid simply owns the assets that connect power producers and consumers together. This reduces its exposure to commodity price swings and enables National Grid to crank out predictable profits in good times and bad.
Despite boasting an incredibly stable business, National Grid's stock has fallen out of favor recently because of currency movements, an asset sale, and Brexit. That weakness has increased dividend yield to 4.6%. That's a temptingly high rate, especially when considering that the dividend only consumes about 67% of earnings. Add in the prospects of single-digit profit growth over time, and I think that National Grid is a wonderful choice for older investors.
A transformative deal
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The demand for spices, seasonings, and condiments is highly predictable since these items don't cost much yet can have a big impact on the appeal of certain foods. This factor is a big reason why McCormick's financial statements are nearly recession-proof. The top dog from the spice aisle has been cranking out consistent revenue and profit growth for decades. In turn, the company has been able to raise its dividend payment for 30 years in a row.
While McCormick is largely a slow-moving behemoth, the company recently made the bold decision to acquire Reckitt Benckiser Group's food division for more than $4.2 billion. The buyout will add a number of top-notch brands to the company's portfolio, including winners like French's mustard, Frank's RedHot, and Cattlemen's BBQ Sauce.
McCormick's management team argued that this acquisition will allow it to grow at a much faster rate in the years ahead. However, the deal is largely being financed with debt, so there's an argument to be made that McCormick's risk profile has increased. Thankfully, management said that its near-term goal after the acquisition closes would be to pay down its debt levels as quickly as possible.
Personally, I'm a believer that McCormick has the know-how and infrastructure in place to make this deal successful. However, Wall Street is skeptical, which is why McCormick's stock is down about 10% from its 52-week high. The drop has pushed the dividend yield up to 1.9% and pulled its forward P/E ratio down below 22. With a payout ratio of 51% and a long history of winning, I think that right now is a great time to snap up a few shares of this Dividend Aristocrat.
A healthcare conglomerate
For investors who crave stability, it's hard to think of a more natural choice than Johnson & Johnson. Johnson & Johnson has been an innovation and acquisition machine since its founding in 1886 and it now counts more than 250 operating businesses in its empire. Collectively, these businesses sell thousands of products in more than 200 countries and help to make J&J's results extremely reliable. So reliable, in fact, that the company has been able to increase its dividend for 54 years in a row.
Despite its gargantuan size, there are reasons that J&J is still in growth mode. The company boasts an extremely exciting pipeline that is sure to produce at least a few blockbuster drugs over the coming years. Moreover, it recently ponied up $30 billion to acquire Actelion, which is a fast-growing Swiss-based drugmaker that currently rings up more than $1.3 billion in sales. Management expects that this deal alone will boost its long-term earnings growth rate growth about 2%. When combined with share buybacks and price increases, Wall Street expects earnings growth of more than 6% over the next five years.
While J&J is currently trading within a few dollars of its all-time high, its valuation still looks quite reasonable. Shares can be purchased for about 17 times next year's earnings estimates and its dividend yield is a market-beating 2.5%. With a sustainable payout ratio of 55% and growth on the horizon, there's no doubt in my mind that J&J is a great choice for conservative investors.
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Brian Feroldi owns shares of McCormick. The Motley Fool owns shares of and recommends Johnson & Johnson and National Grid. The Motley Fool recommends McCormick. The Motley Fool has a disclosure policy.