For many Americans, reaching their 60s is often the point where they transition out of the labor force and into retirement. It means putting that alarm clock to bed for good and putting your feet up on lawn chairs instead.
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However, one thing seniors should never consider retiring from investing. The average 65-year-old, according to the Social Security Administration, is set to live nearly two more decades, which is a result of improved health education, better access to medical care, and improved medicines. In fact, the average life expectancy since 1960 has increased by a shade over nine years. That means now more than ever seniors need to ensure that they won't outlive their money -- and the easiest way to do that is to remain an active participant in what's arguably the best long-term wealth creator, the stock market.
Historically, the stock market has returned 7% a year, inclusive of dividend reinvestment. While that may not sound like a lot, it handily tops the long-term inflation rate, bonds, gold, and pretty much any other asset you can throw into the mix.
Of course, investors in their 60s usually have very different goals and objectives from those in their 20s, 30s, or 40s. If you're in your 60s, capital preservation takes on considerably higher significance, as does income generation. That means you're probably going to be a bit pickier with the stock selection process than you were during your working years. If you're in your 60s and looking to add high-quality, low-volatility income stocks to your portfolio, here are three you might want to buy.
Tired of high prescription-drug costs? Stop fighting the trend and instead profit from it by owning one of the largest pharmaceutical companies in the world: Pfizer (NYSE: PFE).
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The first half of this decade was a rough one for Pfizer, with a number of its blockbuster drugs -- those with $1 billion or more in annual sales -- facing the patent cliff head-on. As an example, cholesterol-fighting drug Lipitor, which was generating more than $13 billion in annual sales at one time, has been reduced to annual sales of less than $2 billion a year as of today. Pfizer simply couldn't bring new drugs to market, or acquire businesses fast enough, to offset the loss in revenue from the entrance of generic drugs.
Now here's the good news for seniors: Pfizer is well past the patent cliff, and it has a host of new therapies to lead another decade of strong growth -- not to mention that Pfizer also had 96 clinical-stage trials or registration reviews ongoing as of May 2, 2017. That included 32 pivotal phase 3 studies, and the discontinuation of just a single study since its Jan. 31, 2017, pipeline update.
The newest star for Pfizer continues to be advanced breast cancer drug Ibrance, which totaled $853 million in worldwide sales in the second quarter, up 67% year over year on a constant currency basis. If Ibrance continues to grow organically on a volume and price basis, and it finds expansion label opportunities, there's no reason it couldn't eclipse $5 billion in annual sales for Pfizer. Anti-inflammatory Xeljanz has also performed well, with sales growth of 56% in the second quarter.
Pfizer brings a nearly 4% dividend yield to the table for investors, as well as a beta that's very close to 1. (Beta is a measure of volatility relative to the S&P 500.) Essentially, seniors get a high-yield pharmaceutical company with strong pricing power that's no more volatile than the broad-based S&P 500.
A few months ago I'd opined that investors in their 70s would be smart to consider adding electric utility NextEra Energy (NYSE: NEE), the largest electric utility by market cap in the U.S., to their portfolios. But it dawned on me that with investors in their 60s and 70s probably having similar goals, NextEra would also be a strong consideration here as well.
It's no secret that electric utilities are a commonly sought-after industry for retirees because of the income they generate -- and NextEra Energy is no exception. The company offers a 2.6% dividend yield, which is nicely above the roughly 2% average for the S&P 500, and its beta of 0.28 implies that it's far less volatile than the broader market, which should allow investors to sleep well at night. But there's far more intrigue here than just some surface-scratching numbers and the fact that NextEra sells a basic-need good, electricity.
The most exciting aspect of NextEra Energy is its focus on renewable sources of electricity generation. In 2015, no company in the world generated more power from wind or solar than NextEra Energy. Last year, the company's electricity generation breakdown showed that 95% came from a combination of natural gas (49%), nuclear (26%), and wind power (20%). While the company's focus on alternative-energy platforms isn't cheap, it sets NextEra and its customers up for significantly lower costs over the long term, and thus more expansive margins.
A large portion of NextEra's business also falls under the umbrella of being regulated. Essentially, that means NextEra needs to get approval from state energy commissions before it can pass along price increases to its customers. Though that might seem like a pain, it's actually great news since it significantly reduces the company's exposure to wholesale electricity price fluctuations. That means Wall Street and investors have a very clear picture each quarter of what to expect in terms of revenue and profit from NextEra.
Considering its focus on wind and solar, mid- to high-single-digit annual EPS growth would be a reasonable expectation over the next five to 10 years.
Another strong consideration for folks in their 60s is the largest waste-management services provider in North America: Waste Management (NYSE: WM).
Like NextEra Energy, one of the main allures of a company like Waste Management is that it offers a basic-need service. If you own a home, you almost certainly need a trash pick-up service, which is where Waste Management comes in. Most waste-management services operate as monopolies or oligopolies, meaning there's significant pricing power on Waste Management's part that allows it to stay well ahead of the inflation curve. In the company's most recent quarterly results, price and volume increases were key to helping revenue jump better than 7% year over year.
However, it's important that investors understand that Waste Management isn't just a solid stock story. Its allure is that it's created other channels of revenue that help to supplement its core waste business. These alternative channels include its recycling operations, which generate revenue and/or profits based on the fluctuating prices of base metals, as well as landfill gas-to-energy facilities, which harness the gases produced in landfills to generate electricity. While these are just secondary channels of revenue next to its core collection business, they can still provide a surprising growth spark for the company over the long run.
With Waste Management, investors in their 60s get a stock that has a beta of just 0.65 (ergo, 65% as volatile as the S&P 500), and a dividend yield of 2.3%, which is slightly higher than the average yield of the S&P 500. Further, Waste Management has consistently increased its payout since 2004 from $0.1875 per quarter to a current quarterly dividend of $0.425. One person's trash could be your portfolio's treasure in this instance.
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