Near-zero interest rates have made it hard to find great retirement stocks. No longer can you buy a basket of high-quality bonds and dividend stocks, and forget about it. Many are anticipating higher inflation in the future. In short, this means you need a portfolio that can keep up with the diminishing value of the U.S. dollar.
How do you do this? Your retirement portfolio needs dividend stocks with a history of increasing payouts. Not only will this provide dividend income that keeps up with inflation. Dividend stocks with rising payouts will also continue to rise over the long term.
So, which names offer this opportunity? These nine come to mind as solid retirement stocks in today’s low-interest world:
- Automatic Data Processing (NASDAQ:ADP)
- Cardinal Health (NYSE:CAH)
- Kimberly Clark (NYSE:KMB)
- Pepsico (NASDAQ:PEP)
- Procter & Gamble (NYSE:PG)
- ProShares S&P MidCap 400 Dividend Aristocrats ETF (BATS:REGL)
- United Parcel Service (NYSE:UPS)
- Vanguard Real Estate Index Fund ETF (NYSEARCA:VNQ)
- Utilities Select Sector SPDR Fund (NYSEARCA:XLU)
Retirement Stocks: Automatic Data Processing (ADP)
After recovering from last March’s “coronavirus crash,” ADP stock has slipped lower as of late. But, that doesn’t mean this venerable payroll processor isn’t a great long-term opportunity.
Sure, its 2.3% dividend isn’t the highest yield you can find. But, Automatic Data Processing has a long history of dividend increases. In the past five years, its payout increased by an average of 12.9%. But, besides its history of dividend growth, there’s another reason to consider this as a great retirement income play.
As a Motley Fool Commentator recently discussed, ADP may not have the strongest economic moat. Nor is it in a fast-growing industry. Yet, what it does offer is reliable dividends. With consistent, recurring revenue, you can be confident that this boring payroll processor will continue to generate the cash flow necessary to support its dividend.
One caveat, though, is valuation. At a forward price-to-earnings (P/E) ratio of around 29x, valuation may be stretched here. That being said, consider this a stable retirement stock to buy, on its merits as a dividend aristocrat.
Cardinal Health (CAH)
As I discussed back in December, Cardinal Health is a reliable value stock in the healthcare sector. A pharmaceutical distributor, the company in prior year had opioid-crisis related litigation hanging over head. But, working to settle these claims, this is now less of a concern.
Yet, getting out of the woods with the opioid crisis hasn’t done much to boost CAH stock. After rallying in early November, the stock stalled around $55 per share. But, with this underwhelming performance comes the opportunity to buy into it at a fantastic valuation.
What do I mean?. Shares trade for only 9.4x forward earnings. Not only that, the stock yields a solid 3.55%. While still largely ignored by the market, shares have room to run, once Wall Street begins to appreciate its underlying value.
Even if shares fail to take off, this is a still a great long-term dividend stock. With 26 years of consecutive dividend growth, this is an income play that can keep up with inflation. Again, don’t expect Cardinal Health to set the world on fire. But, for a stable, cheaply-priced retirement stock, consider this a great opportunity.
Retirement Stocks: Kimberly Clark (KMB)
The rapid rise in demand for toilet paper has come and gone. But, while investors have lost interest in Kimberly Clark stock, as lockdown-related stockpiling cooled, you don’t need toilet paper to be a hot commodity for this stock to perform well going forward.
Why? Firstly, the dividend. Yielding 3.26%, this company sports 48 years of consecutive dividend growth. And, while its payout has only grown by mid single digits over the past five years, its current slow-and-steady approach to dividends may make it a sustainable income play.
Secondly, this is a recession-resistant defensive stock. If the stock market sees a correction and/or crash, expect names like KMB stock to experience less volatility. For conservative, retirement-oriented portfolios, it’s names like this one that should be top of mind.
Bottom line: Kimberly Clark is one of the best retirement stocks out there. Don’t expect blockbuster returns. But, as a stock that can keep up with inflation, this venerable household products name is one to keep top of mind.
Consumer products names like soft drink makers are some of the best retirement stocks to buy. With solid yields and a track record of dividend growth, names in this sector offer both capital growth and income potential.
So, why am I only including Pepsico, and not its main rival, Coca-Cola (NYSE:KO)? Sure, Warren Buffett has held KO stock for decades. But, that alone doesn’t make it the best soft drink stock for retirement investors.
Why? Coca-Cola shares may have a higher forward dividend yield (3.4%, versus 2.9% for PEP stock). Yet, with Coke’s payout ratio now at around 86.6%, it has little room to increase its payout. As this Seeking Alpha commentator discussed, this factor could take minimize potential gains going forward.
Yet, Pepsico has more room to increase its payouts. Growing its dividend by an average of 7.8% in the past five years, expect payout boosts to continue. In turn, expect its stock to continue rising, in tandem with future dividend increases. Sure, at 25.8x forward earnings, valuation looks a bit stretched. But, in today’s low-interest rate environment, valuation contraction is a minimal risk for now.
Retirement Stocks: Procter & Gamble (PG)
Household products is another sector for retirement stock opportunities. A defensive sector, names in this space will be more resilient if markets correct or crash in the coming years. Not only that, with high-margins, and large economic moats, you can be rest assured they can continue to pay (and grow) their respective dividends.
In short, the perfect recipe for a successful retirement portfolio. With this in mind, PG stock is a name to keep in mind – mainly due to its stability. This is obvious when considering its track record of dividend increases. As our own Louis Navellier wrote on Jan. 19, the company has increased its dividend 57 years in a row.
Don’t expect to get rich off of this blue-chip stock. But, if you are looking for a stable name for the long haul, this is one of your best options. Its 2.4% dividend yield may not be the highest when it comes to dividend stocks. But, at a payout ratio of 56.5%, it may be much more sustainable than other dividend plays paying out 70% to 80% of their earnings.
Sure, low interest rates have pushed this stock’s valuation to levels far above their historic forward P/E. Yet, while pricey, consider this a safe, stable retirement stock for your portfolio.
ProShares S&P MidCap 400 Dividend Aristocrats ETF (REGL)
Dividend aristocrats (stocks with 25-plus years of dividend growth) are top of mind when it comes to retirement stocks. But, while most flock toward large-cap dividend aristocrat ETFs (exchange traded funds) like the ProShares S&P 500 Dividend Aristocrats ETF (BATS:NOBL), its mid-cap counterpart may offer the best mix of growth and yield in the coming years.
Granted, with investors more interested in large-cap dividend stocks, REGL stock has underperformed relative to NOBL stock. Not only that, it’s returns trailed major indices like the S&P 500 (NYSEARCA:SPY).
Yet, that may not be the worst thing in the world for those entering the stock today. Large-cap stocks have been more resilient during the novel coronavirus pandemic. But, if mid-cap names bounce back with a vengeance as Covid-19 enters the rearview mirror, this lesser-known ETF could outperform in the coming years. Yielding a respectable 2.34%, consider this one of the best retirement stocks to consider in today’s market.
Retirement Stocks: United Parcel Service (UPS)
I don’t have to tell you how much United Parcel Service has benefited from the stay-at-home economy. But, while its share price more than reflects its 2020 pandemic tailwinds, there are key reasons why you should look beyond its near-term strong performance, and consider its merits as a long-term retirement stock.
Regarding its dividend, UPS stock currently yields about 2.5%. And, like some of the other names listed here, its solid dividend growth rate, and its moderate payout ratio (around 52.7%), point to strong potential for this stock continuing to be a great dividend stock.
Sure, there’s been concern Amazon (NASDAQ:AMZN) will eventually muscle out this century-old delivery service. But, these fears may be overblown. With growth potential from e-commerce, along with its status as a dividend stock, consider UPS stock a top buy for a retirement portfolio.
Vanguard Real Estate Index Fund ETF (VNQ)
The real estate sector is another great place to find retirement stocks. But, with scores of REITs (real estate investment trusts) owning varying property types (apartments, office building, shopping centers), diversification may be your best bet.
So, what’s the most straightforward way to achieve this? How about via a low-cost REIT ETF like the Vanguard Real Estate Index Fund? This fund gives you the benefits of diversification, with a super-low expense ratio of 0.12%.
Offering broad exposure to the real estate sector, this REIT not only gives you exposure to retail REITs like Simon Property Group (NYSE:SPG). It also gives you exposure to more niche REITs, like cell tower owner American Tower (NYSE:AMT) and data center REIT Digital Realty Trust (NYSE:DLR).
With a 3.95% forward yield, VNQ stock makes for a great income play in a retirement portfolio. Not only that, there is a pathway for more gains as well. Sure, it has somewhat recovered from its pandemic losses. But, at $84 per share, this ETF is still below its high-water mark of just under $100 per share.
Retirement Stocks: Utilities Select Sector SPDR Fund (XLU)
Along with real estate, a retirement portfolio can benefit from exposure to utilities stocks. Offering solid dividend yields, and low volatility, utility stocks have had a long history as investment vehicles for retirees.
Again, like with REITs, a diversified, low-cost ETF may be your best bet for exposure to this sector. This makes Utilities Select Sector SPDR ETF a great option. Sporting a 3.14% forward yield, and an expense ratio of just 0.13%, this exchange-traded fund includes many top names in its portfolio.
With XLU stock, you get exposure to well-known old-school utilities stocks like Duke Energy (NYSE:DUK), Dominion Energy (NYSE:D), and Southern Company (NYSE:SO). Also, you get exposure to utilities stocks with meaningful green tailwinds like NextEra Energy (NYSE:NEE).
But, keep in mind that future performance depends on the future direction of NEE stock. It currently makes up a disproportionate percentage of this ETF’s portfolio (17.3%). Even so, this ETF remains a great vehicle for adding exposure to low-volatility utilities stocks to your retirement portfolio.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.