If you're in your 70s, your investment goals are very different than when you were in your 30s, 40s, and 50s. While once you were focused on capital growth, today you'll likely be more concerned with capital preservation and income. In other words, it's time for some boring, high-yields stocks like utilities Duke Energy (NYSE: DUK) and Southern Company (NYSE: SO).
What is "boring"?
Before we get too far into this, let's take a look at beta. Beta is a financial measure of a stock's price movement relative to a broader index (most often the S&P 500 index). A beta of 1 means a stock is expected to be roughly as volatile as the index to which it's being compared. A beta above 1 means the stock would be expected to move more than the index. A beta of 2, for example, suggests that a stock is twice as volatile as the index.
If you're looking for a low-volatility investment, though, you'll want to focus your efforts on stocks with betas lower than 1. This means that you'll miss some upside when the market is advancing, but you're also likely to fare much better on the downside when markets are falling. Duke's beta is 0.26 and Southern's is 0.15. If you've reached your eighth decade of life and decided that boring stocks sound pretty good, then this duo is right up your alley.
A growth boost
Duke Energy's regulated electric and natural gas utilities serve millions of customers across six states, with its largest footprints being in in Florida, North Carolina, South Carolina, and Indiana. The stock yields around 3.9%, backed by 13 consecutive years of annual dividend increases. That said, Duke has been paying dividends for over 90 years.
Over the last few years, Duke has revamped its business by selling less desirable assets (foreign utilities), making acquisitions (adding the gas business), and spending on internal investment (building its renewable merchant power business). These moves were meant to better align Duke with the current business environment and to boost growth. The company expects earnings and dividend growth of around 5% a year. That beats inflation, and when considered with the low beta, makes Duke stock a nice option for risk-conscious types.
Mistakes were made
Southern Company's low beta may come as something of a surprise when you consider the headlines it's made with its high-profile construction projects. The company's foray into clean coal, for example, appears to be a bust, and its nuclear investment has been plagued by cost overruns and financially troubled partners. That helps explain why the stock yields 4.4%.
But Southern, which serves millions of electric and gas customers in nine states (it has a large footprint in the southeastern U.S.), has rolled with the punches. Despite its troubles, the company has increased its dividend each year for the past 17 years. That said, it has paid a stable or increasing dividend for roughly seven decades. And like Duke, it's been adjusting with the times -- for example, coal was once the primary fuel for its electric fleet. Today, however, natural gas is roughly 50% of the total, with nuclear at 15% and renewables at about 5%.
Southern probably has a few more years of ugly headlines ahead of it as it cleans up the coal mess and completes its nuclear investment. But the elevated yield is worth the bad headlines. The business should continue to move along on a slow and steady course, with dividends pacing along with inflation just like they have over the trailing three-, five-, and 10-year periods. That may not sound exciting, but that's the point -- despite all the negatives, investors have been able to rely on Southern's slow and steady dividend growth while taking comfort in a relatively boring stock.
Boring is beautiful
At the end of the day, any stock with a beta of 0.25 or so is likely to put you to sleep. However, if you are in your 70s, that could be a very desirable attribute. Duke Energy and Southern Company are two big U.S. utilities that provide relatively large yields, impressive dividend histories, and low betas of 0.26 and 0.15, respectively. Don't expect huge dividend or earnings growth, but either could provide a solid (and boring) cornerstone to your retirement income portfolio.
10 stocks we like better than Southern CompanyWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Southern Company wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of November 6, 2017