When you think of “retirement stocks,” a few things come to mind. You’re generally looking for something timeless — a company that has been around for decades and appears to be future proof. After all, if you’re going to depend on this stock to support you in your golden years, you don’t want it to be at risk of technical obsolesce in a few years.
A good retirement stock also will have an iron-clad balance sheet with low or very manageable levels of debt. The quickest way to make a stable, boring business risky is simply to lever it up.
And ideally, you’d also like to see your retirement stock pay a dividend and have a long history of increasing its payout. A good dividend reduces your need to sell shares at what could be lousy prices during bear markets.
So today, we’re going to take a look at five low-risk retirement stocks that you can depend on in your golden years. I’ll give you fair warning: At today’s market prices, not all of these stocks are priced to deliver particularly high returns. You might want to wait for a pullback before really backing up the truck and buying any of these aggressively.
All the same, if you’re looking for companies that should survive the end of days, this list is for you.
Dividend Yield: N/A
I’ll start with the Oracle of Omaha’s baby, diversified conglomerate Berkshire Hathaway Inc. (NYSE:BRK.B).
I’ll also warn you up front: Berkshire, unlike the rest of the stocks on this list, doesn’t pay a dividend. But there’s a reason for that. Every would-be dollar paid out as a dividend is a dollar that is no longer available for Warren Buffett to invest. When you have the most legendary stock picker in history running the portfolio, you let the man work.
Berkshire Hathaway’s portfolio is eclectic. It’s largest public holdings are the Kraft Heinz Co (NYSE:KHC), Wells Fargo & Co (NYSE:WFC), Apple Inc (NASDAQ:AAPL) and The Coca-Cola Co (NYSE:KO) — companies that, with the exception of Apple, all have very old business models that haven’t changed much over the decades and are themselves ideal retirement stocks. (And nothing against Apple, by the way; I’m long the company myself. It’s just not what I’d consider a prototypical “retirement stock.”)
Berkshire also owns See’s Candy, Justin Boots, Nebraska Furniture Mart and a host of other private companies that have also been around for decades with time-tested business models.
Yes, Mr. Buffett is 86 years old and won’t be running things forever. But he has assembled a fantastic portfolio of retirement stocks that should still be churning out profits decades after Mr. Buffett goes to that big stock exchange in the sky.
Dividend Yield: 4.4%
Conservative retail real estate investment trust Realty Income Corp (NYSE:O) may be the single best example of what a retirement stock should be. The company is doing the exact same thing today as it was doing at the time of its 1994 initial public offering, and I have a feeling Realty Income will still be doing the same thing decades after I’ve died and joined Mr. Buffett in that big stock exchange in the sky:
Collecting a steady stream of rent from high-quality retail tenants.
No stock is ever truly “future proof,” but Realty Income comes awfully close. It’s tenants tend to be concentrated in high-traffic neighborhood properties that tend to be immune to Amazon.com, Inc. (NASDAQ:AMZN) and the onslaught of e-commerce.
Realty Income has paid 565 consecutive monthly dividends and has raised its dividend for 79 consecutive quarters. It’s 5% average annual dividend bump isn’t get-rich-quick money, but it’s well ahead of the rate of inflation.
I eat my own cooking with this stock; I own shares that I have pledged to never sell. I intent to live off the dividends in retirement, then leave the shares to my children in my will.
Dividend Yield: 6.4%
There may come a point when America no longer needs fossil fuels. But I’m betting that that day is decades into the future and beyond the investment time horizon of any investor reading this.
That’s good news for pipeline giant Enterprise Products Partners L.P. (NYSE:EPD), one of the largest movers of clean-burning natural gas.
Ten years ago, I would have argued that Enterprise was future-proof. With the recent advances in green energy, I’d revise that statement to say that EPD is “future-resistant.” For the foreseeable future, natural gas remains the most efficient fuel to heat homes in the winter.
Enterprise Products is a fine example of stability and consistency in an industry better known for gun-slinging cowboys. Rather than layer on debt to turbocharge growth and boost the distribution like some of its peers, EPD chose the slow and steady approach. It chose to be the tortoise rather than the hair, growing its distribution at 5%-6% per year.
And at current prices, EPD yields a very attractive 6.6%, much of which will be tax-deferred for years for most investors due the company’s high non-cash expenses like depreciation.
Dividend Yield: 8.2%
Benjamin Franklin once joked that the only two certainties in life are death and taxes. Well, I’d add old age to that list. Not all of us make it to our golden years, of course. But a lot of us do, and that creates fantastic opportunities for Omega Healthcare Investors Inc (NYSE:OHI).
Omega Healthcare Investors owns skilled nursing and assisted living facilities. Importantly, Omega does not actually operate those facilities. That’s the business of its tenants. Omega’s responsibility consists of simply collecting the rent.
This is an important distinction. Skilled nursing and assisted living facilities often depend on the government (specifically Medicaid) for reimbursement. Well, Uncle Sam isn’t the most reliable payer these days. He has a way of changing the rules halfway through the game, which can wreak havoc on skilled nursing and assisted living businesses.
They’re likely to keep paying the rent, however. And that’s just fine for Omega Healthcare.
OHI has raised its dividend for 20 consecutive quarters, with no end in sight, and currently yields 8.2%. If that doesn’t make it an attractive retirement stock, I don’t know what would.
Dividend Yield: 2.4%
McDonald’s Corporation (NYSE:MCD) is the ultimate survivor stock. Despite being the seller of mediocre hamburgers for over six decades, the company has managed evolve over the years and stay relevant. I’m willing to believe that six decades from now McDonald’s will still be alive and kicking, even if its menu is likely to look a lot different.
This is exactly what you want in a retirement stock. You want a company that is consistent yet also adaptable to the times. MCD has managed to be exactly that.
Perhaps there is no better sign of McDonald’s consistency than its stellar record of paying and raising its dividend for the past 40 consecutive years.
MCD stock isn’t particularly cheap at current prices, so you might want to wait for a slight pullback before buying. But even if it’s a little richly valued today, McDonald’s is a sensible stock for a retirement portfolio.
Charles Sizemore is the principal of Sizemore Capital, a wealth management firm in Dallas, Texas. As of this writing, he was long AAPL, EPD, O and OHI.