In the years leading up to your retirement, stock investments will help you build that nest egg. But the investing doesn't stop when the golden years start -- it's just your requirements that change.
So, we asked a few of your fellow investors here at The Motley Fool to share a few stock ideas tailored to the actual retiree. They came up with some golden combinations of powerful dividends, deep-discount value, and stability for the long haul. Read on to learn why our panel recommends investing in Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Welltower (NYSE: HCN), and Coca-Cola (NYSE: KO).
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Search no longer for the right retiree stock
Dan Caplinger (Alphabet): Retirees often feel like they have to invest solely in dividend-paying stocks of conservatively oriented companies. On that score, Alphabet seems like a nonstarter, with no dividend and plenty of aggressive bets on high-growth areas like self-driving automobiles, smart speaker systems, and next-generation mobile devices.
Yet even retirees need to understand that long-term growth is an important aspect of nearly everyone's investment portfolio, and Alphabet brings some valuable characteristics to the table. The strength of the Google search engine remains unchallenged, and that provides a core foundation of revenue and profit on which shareholders can rely well into the future. At the same time, growth initiatives ensure that the tech giant will remain a key player in new trends and avoid the danger of falling out of touch with changing conditions in the industry.
With projections for 20% earnings growth annually over the next five years, Alphabet's stock doesn't even look that expensive compared to some of its peers. Retirees might not see Alphabet as the most obvious retirement-oriented stock, but its combination of growth potential and value make it an attractive choice for those who can't afford to live solely on dividend income for the rest of their lives.
You can't beat the real thing
Anders Bylund (Coca-Cola): Selling sugary drinks has not been an easy business in recent years. In response, Coca-Cola has diversified and staked out a new path forward.
The company is listening to the wants and needs of consumers around the world and adjusting its product mix accordingly. Today, many customers are looking for all-natural ingredient lists and lower sugar content. No problem -- Coca-Cola is already a global market leader in fruit juices, bottled water, sports drinks, and ready-made iced tea products. By shifting around its marketing budgets and development efforts, this company can protect and extend these important business advantages until sweetened drinks are in fashion again.
Meanwhile, the core portfolio of sparkling soft drinks is getting a makeover with new low-sugar and sugar-free options and revamped package sizes. The worldwide production and distribution system is also getting a makeover, designed to widen Coca-Cola's margins and long-term competitive strength. Coca-Cola is ready to compete for the long run, even if that means making some fundamental changes along the way.
And the cash machine continues to run. Coca-Cola has produced $6.4 billion of free cash flow over the last four quarters, returning every penny to shareholders in the form of dividends and share buybacks. Dividend payouts have more than doubled over the last decade, and Coca-Cola's payout increases are have been like clockwork:
This company combines long-term vision with unrivaled business scale and a valuable brand name. Coca-Cola rolls with the punches and comes back swinging. Expect those juicy dividend checks -- currently yielding 3.2% -- to keep coming and keep growing.
Profit from a trend of your own making
Jason Hall (Welltower Inc): Today's retirees are part of a huge trend that's going to have implications on many things -- none moreso than healthcare and housing. This trend is on track to create a huge, decades-long growth opportunity for Welltower. Over the next dozen years, almost 40 million Americans will reach age 65, and the number of 85-plus Americans is expected to double within 20 years.
This is going to require a significant increase in the number of housing and healthcare facilities to meet the needs of this aging population. Welltower is positioned to be one of the biggest companies to help meet this need in the U.S. as well as Canada and the United Kingdom, which will see their older populations increase at similar rates as in America.
As a real estate investment trust, or REIT, Welltower is also an excellent income stock since it must pay 90% or more of its earnings in dividends. At recent prices, it pays a 5% yield, and has a pretty solid track record of growing the payout over the past 25 years, and should remain a great income growth stock based on its prospects. Trading for 16.4 times funds from operations it's not exactly dirt-cheap, but with a steady source of cash flows that support the dividend and a huge secular trend set to drive years of growth, it's exactly the kind of stock that makes sense for retirees to buy and hold.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Anders Bylund owns shares of Alphabet (A shares). Dan Caplinger has no position in any of the stocks mentioned. Jason Hall owns shares of Alphabet (A shares) and Coca-Cola. The Motley Fool owns shares of and recommends Alphabet (A and C shares). The Motley Fool recommends Welltower. The Motley Fool has a disclosure policy.