One of the great myths about retirement investing is that all one needs to do is invest in fixed income securities and blue-chip retirement stocks, and things will be just rosy.
The problem is that this isn’t really true. Real inflation is closer to 10% than 3%. That means that retirement stocks aren’t going to cut it. Retirement investors need to take on a little more risk than they’ve been told to, because inflation is going to eat away that nest egg … unless that nest egg is large enough on its own to provide for you.
Consequently, folks need to broaden their notions as to what are considered retirement stocks, beyond the no-growth dividend payers of lore. Retirement stocks must have the capacity for some kind of capital gain, such that the potential for growth plus the dividend gets one closer to that 10% inflation rate.
Here are three retirement stocks that will do more than just pay you dividends:
Walt Disney Co (DIS)
Walt Disney Co (NYSE:DIS) is one of the great retirement stocks that isn’t thought of an investment for retirement. The truth, however, is that DIS stock is extremely well-positioned for the next several decades. DIS stock is going to pump out tons of cash flow on top of organic growth.
That’s because DIS stock made the brilliant moves of purchasing Pixar Studios, Marvel Studios and LucasFilm over the past few years. That has given Disney access to the finest talent, that understands great storytelling, in film and television and how to reach generations of fans across multiple genres.
In this case, the 1.1% dividend yield means little. Retirement investors should be buying DIS stock for its long-term growth prospects. Analysts are looking at 15% annualized growth for the next five years as it is. I believe it will go on long after that, and should be a cornerstone of your retirement portfolio.
Chevron Corporation (CVX)
Despite the crash in oil prices, readers of my column know that I believe fossil fuels are here to stay, at least for the next fifty years. That will take most people through retirement. To that end, you must hold energy stocks of some kind for retirement. Now, in fact, is a great time to buy in or add to your position because oil prices are low.
You have many choices here, and none of them are bad ones. Personally, I’d go with Chevron Corporation (NYSE:CVX) because it has been harder hit than some other stocks, which means it has more upside (i.e. the capital gains I’m talking about).
CVX stock is about 30% off its all-time high. Chevron has $44 billion in cash, short-term investments and long-term investments. While free cash flow has been struggling the past few years, CVX stock has been investing heavily in infrastructure to take it into the next several decades.
Chevron also pays a 3.9% yield.
Cincinnati Financial Corporation (CINF)
The last choice has to come from the insurance sector, because insurance is a great business if run properly. Not surprisingly, I’m going with a dividend aristocrat here in the form of Cincinnati Financial Corporation (NASDAQ:CINF).
CINF stock is paying a 3.6% dividend, but more importantly, CINF stock has doubled over the past five years. Over the past twenty years, Cincinnati Financial has outperformed the S&P 500 with a 511% cumulative return versus the index’s 467% return.
Insurance is key for retirement, because a full-line company like CINF stock, understands that underwriting and risk assessment is what keeps it successful. Cincinnati Financial takes more in premiums than it pays in claims, and that’s what makes it a winner.
CINF has over $14 billion invested, and generates tons of cash flow every year. In fact, CINF grew from $638 million in fiscal year 2012 to $873 million in fiscal year 2014. You’re in good hands … with Cincinnati Financial.
Lawrence Meyers owns DIS. Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.