Retirement tends to bring with it a change of pace, and it also tends to bring a change of investment strategy. For most investors, that means shifting their stock holdings toward equities that have reasonable valuations, steady businesses, reliable income generation, and other characteristics that suggest that they'll be dependable wealth creators.
Continue Reading Below
Read on to learn why a panel of three Motley Fool investors singled out Sonoco Products (NYSE: SON), Clorox (NYSE: CLX) and PepsiCo (NYSE: PEP) as stocks that could help you achieve the retirement of your dreams.
Wrap up this stock and take it home
Dan Caplinger (Sonoco Products): One of retirees' key financial goals is making sure their investment portfolios produce income while also offering conservative growth potential. Sonoco Products is far from a household name, but it has demonstrated its ability to provide both strong income and a solid business.
Sonoco Products is a global provider of packaging products and services, offering packaging and retail display services, flexible product container design, attractive packaging graphics, custom pallets, and a wide range of industry-specific solutions designed to meet businesses' unique needs. That ties the company's success to that of the broader consumer goods industry, but even though difficult conditions recently in retail have led to generally weak market demand, Sonoco nevertheless has found ways to improve productivity and keep up with its competitors in the packaging space.
Retirees will appreciate Sonoco's 3.2% dividend yield for the current income it brings. They'll also like the fact that the company has raised its dividend for 35 straight years, including a more than 5% increase this past May. The packaging industry won't be a growth leader, but it will give conservative investors stability.
Continue Reading Below
Clean up with this Dividend Aristocrat
Rich Duprey (Clorox): Best known for its namesake bleach, Clorox is home to a portfolio of brands that hold the No. 1 or No. 2 market share positions in their respective markets, including Glad trash bags, Kingsford charcoal, Fresh Step and Scoop Away kitty litter, and more.
That bevy of brands results in Clorox throwing off substantial amounts of free cash flow -- $637 million over the last 12 months alone -- which it uses it to pay dividends and buy back shares. The consumer products giant has paid a dividend every year since it was spun off from Procter & Gamble in 1968, and equally impressive, has increased its payout for 40 consecutive years, making it a Dividend Aristocrat, and putting it on course to join the even more rarefied ranks of the Dividend Kings: companies that have raised their dividends for at 50 consecutive years or more.
Given that Clorox maintained and raised its payout even through the Great Recession, there appears to be little danger of the company cutting or suspending its current $3.39 per share dividend that today yields 2.5%, especially since it sports a safe 60% payout ratio.
Stack dividends with this consumer goods giant
Keith Noonan (PepsiCo): With a sturdy, dependable business and dividend growth you can count on, PepsiCo is a great stock for retirement portfolios. Though it's best known as a maker of soft drinks, it's also the world's largest snack company, with the North American branch of its Frito-Lay business alone generating $15.5 billion in sales last fiscal year, and accounting for roughly 39% of its domestic revenue.
While American sales volume for carbonated beverages has slipped in recent years, the company has been able to smooth out the results by increasing prices, and it has been flexing its pricing power in other categories as well. PepsiCo's wealth of powerful brands should help it maintain pricing strength, and it's making progress building out its product offerings to match shifting consumer tastes. Factor in that it has plenty of room to expand sales internationally, and the potential to reduce costs by improving supply chain efficiency, and it's clear that PepsiCo has credible avenues for achieving long-term earnings growth.
Turning to the returned income component, the stock currently yields a solid 2.8%, and investors can feel confident that payouts will continue to grow each year. In May, PepsiCo delivered its 45th consecutive annual dividend increase in the form of a 7% boost that brought its average annual dividend growth over the last five years to roughly 8%. Earnings momentum and a 62% payout ratio suggest that the snack and beverage leader is in good shape to continue delivering dividend growth in that range.
Trading at roughly 22 times forward earnings estimates, PepsiCo is a reasonably priced stock that offers a combination of growth and returned income prospects that make it a perfect fit for retirees' portfolios.