Seasoned investors realize blue-chip stocks could help achieve financial independence in retirement. A blue-chip business is a well-established company that typically has a long and robust earnings history, tangible assets, stable dividends, and proactive management. Share prices of blue-chips also tend to recover quite quickly from market declines. All these characteristics make them strong choices for retirement portfolios. Today’s article, therefore, discusses seven blue-chip retirement stocks that may be perfect for those golden years.
Members of the Dow Jones Industrial Average (DJIA) are accepted as blue-chip stocks. Over the past year, the DJIA has returned over 14%. In addition, the annual average dividend yield of the index stands around 2%.
Many investors in their later years consider living off the cash flow generated by dividend payments in their portfolio holdings without even tapping into their capital. Therefore, these fiscally-stable blue chip retirement stocks could be appropriate for such passive-income seekers.
S&P Global (NYSE:SPGI) suggests, “Since 1926, dividends have contributed to approximately one-third of total return while capital appreciations have contributed two-thirds. Therefore, both sustainable dividend income and capital appreciation potential are important to total return expectations.”
Blue-chip stocks also help investors in portfolio diversification. The U.S. Securities and Exchange Commission (SEC) suggests, “By picking the right group of investments, you may be able to limit your losses and reduce the fluctuations of investment returns without sacrificing too much potential gain.”
With that information, here’re seven options you may want to check for investing in blue chip retirement stocks in 2021.
- CVS Health (NYSE:CVS)
- Health Care Select Sector SPDR Fund (NYSEARCA:XLV)
- International Business Machines (NYSE:IBM)
- International Paper (NYSE:IP)
- Invesco Dow Jones Industrial Average Dividend ETF (NYSEARCA:DJD)
- iShares U.S. Consumer Goods ETF (NYSE:IYK)
- Procter & Gamble (NYSE:PG)
Retirement Stocks: CVS Health (CVS)
52-week range: $52.04 – $77.23
Dividend yield: 2.90 %
Rhode Island-based healthcare CVS Health needs little introduction. It has over 10,000 retail pharmacy locations in close proximity to 80% of the U.S. population. The company is also the largest pharmacy benefit manager stateside.
CVS Health reported Q4 and full year results on Feb. 16. Total revenue was $69.6 billion, a 4% YoY increase. GAAP net income decreased 44.1% to $975 million. This decline was mainly due to lower operating income because of the pandemic as well as a loss on early extinguishment of debt of $674 million during the quarter. Adjusted diluted earnings per share was $1.30, compared to $1.73 in the prior year quarter.
On the other hand, net income increased 8.5% for the year ended Dec. 31, 2020. CEO Karen Lynch stated:
We utilized the full depth and breadth of our capabilities and our presence in local communities across the country to play a leadership role in COVID-19 testing and vaccine administration. Our ability to deliver 2020 full year results above expectations is a testament to the strength of our strategy and the flexibility of our diversified health services model.
The group is increasingly playing a key role in vaccine distribution. As a result, foot traffic is likely to increase in those locations, helping boost revenues in the long-run. Passive-income seekers could consider buying shares of this retirement stock.
Health Care Select Sector SPDR Fund (XLV)
52-Week Range: $73.54 – $118.99
Dividend Yield: 1.5%
Expense Ratio: 0.12% per year
Over the past year, health became one of the most important parts of our lives. Therefore, our next choice in this list of retirement stocks is an exchange-traded fund (ETF). The Health Care Select Sector SPDR Fund focuses on biopharma and life sciences firms. Other business in the fund include providers of healthcare equipment and supplies. Since its inception in December 1998, funds under management have grown close to $25 billion.
XLV, which tracks the Health Care Select Sector Index, holds 63 stocks. Close to 50% of the fund’s assets are concentrated in the top ten stocks. They include Johnson & Johnson (NYSE:JNJ), UnitedHealth (NYSE:UNH), Abbott Laboratories (NYSE:ABT), AbbVie (NYSE:ABBV), and Merck (NYSE:MRK).
Year-to-date (YTD), the fund is flat. But, it hit a record high on Jan. 26. Its current price supports a dividend yield of 1.5%. Given the current volatility in broader markets, several of the names in the fund could come under increased pressure. Potential declines would improve the margin of safety for buy-and-hold investors.
International Business Machines (IBM)
52-week range: $90.56 – $136.09
Dividend yield: 5.42%
Armonk, New York-headquartered tech giant International Business Machines offers software, information technology (IT) services and hardware. Over 90% of the Fortune 500 companies are its clients. IBM’s mainframes manage 90% of all credit card transactions globally. Therefore, the company is aiming to become a dominant fintech and blockchain player. The group is also responsible for 50% of all wireless connections in the world.
IBM reported 2020 fourth quarter and full year results on Jan. 21. Q4 net revenue was $20.4 billion, down 6% YoY. Yet, analysts were pleased to see that total cloud revenue came at $7.5 billion, up 10% YoY. The company has been focusing on increased cloud-based software solutions.
Non-GAAP net income and diluted EPS were $1.9 billion and $2.07, respectively, both down 56% YoY. IBM’s free cash flow was $6.1 billion during the quarter.
“We made progress in 2020 growing our hybrid cloud platform as the foundation for our clients’ digital transformations while dealing with the broader uncertainty of the macro environment.” said Arvind Krishna, IBM chief executive officer. “The actions we are taking to focus on hybrid cloud and AI will take hold, giving us confidence we can achieve revenue growth in 2021.”
The fact that IBM shares have not done well over the past year means the dividend yield now stands well above 5%. As the company reorganizes to become a leaner operation with cloud based recurring revenue streams, its shares are likely to shine again.
International Paper (IP)
52-Week Range: $26.38 – $53.39
Dividend Yield: 4.12%
Memphis, Tennessee-based paper and packaging group International Paper has operations worldwide. Its segments include Industrial Packaging, Global Cellulose Fibers, Printing Papers and Consumer Packaging.
On Feb. 4, the group announced full-year and fourth-quarter 2020 results. Net sales for the quarter were $5.24 billion, compared to $5.50 billion in Q4 2019. Quarterly net earnings and EPS came at $153 million 39 cents per diluted share. A year ago, the metrics had been $165 million or 42 cents per diluted share. Finally, free cash flow for the quarter stood at $695 million.
Analysts noted the strength in packaging products. However, paper sales declined. CEO Mark Sutton said, “In 2020, we returned $800 million to shareholders and reduced debt by $1.7 billion… As we enter 2021, we anticipate continued strong demand for corrugated packaging and pulp and are poised to grow earnings.”
Potential investors would find better value around $47.50.
Invesco Dow Jones Industrial Average Dividend ETF (DJD)
52-Week Range: $25.21 – $41.57
Dividend Yield: 0.99%
Expense Ratio: 0.07%
Our next choice is another ETF, the Invesco Dow Jones Industrial Average Dividend ETF. The fund provides exposure to dividend-paying companies in the DJIA. It is based on the Dow Jones Industrial Average Yield Weighted (Index), which includes firms with consistent dividend payments over the previous 12 months. Both the index and the ETF are balanced semi-annually.
Since its inception in December 2015, assets under management have reached $91 million. It currently holds 28 stocks and close to 60% of the fund is allocated to the top ten names. Chevron (NYSE:CVX), Dow (NYSE:DOW), Walgreens Boots Alliance (NASDAQ:WBA), JPMorgan Chase (NYSE:JPM) lead the names in the roster.
YTD, the ETF is up almost 7%. Given the increased volatility in broader markets, several of the names in the fund could come under pressure in the coming days. A potential decline toward $39 or lower would improve the margin of safety.
iShares U.S. Consumer Goods ETF (IYK)
52-Week Range: $92 – 182.13
Dividend Yield: 1.42%
Expense Ratio: 0.43%
The iShares U.S. Consumer Goods ETF gives access to consumer goods firms stateside. These businesses operate in sectors that span from food and beverage to automobile and household items. IYK started trading in June 2000, and net assets stand at $739 million.
IYK, which tracks the returns of the Dow Jones U.S. Consumer Goods Index, currently has 97 holdings. The top ten stocks comprise over 55% of total holdings. As far as industries are concerned, funds are distributed among Food, Beverage, Tobacco (35.25%), Auto & Components (23.41%), Household & Personal Products (17.78%) and Consumer Durables (15.91%), among others.
The leading name in the ETF is Tesla (NASDAQ:TSLA), which accounts for 16.94% of the fund’s total holdings. Next in line are Procter & Gamble, Coca-Cola (NYSE:KO), PepsiCo (NASDAQ:PEP), and Nike (NYSE:NKE).
IYK is down 1.3% since the start of the year. Yet, it hit a record high in early February. As a result of the increase in price over the past year, the valuation metrics are frothy. Those investors who would like to have significant exposure to shares of Tesla as well as U.S. consumer giants could consider investing in the fund, especially in the case of a short-term decline toward $160.
Procter & Gamble (PG)
52-week range: $94.34 – $146.92
Dividend yield: 2.55%
Last up on this list of retirement stocks is Cincinnati, Ohio-based Procter & Gamble, one of the most important consumer goods companies worldwide. Its history goes back to 1837. Several of its well-known brands include, Ariel, Charmin, Crest, Downy, Febreze, Gillette, Head & Shoulders, Olay, Oral-B, Pampers, Pantene, Tide, and Vicks.
On Jan.20, the group announced FY21 Q2 results. Net sales of $19.7 billion showed an increase of 8% YoY. Net earnings were $3.8 billion, up by 4% YoY. Diluted net EPS was $1.47, also an increase of 4% YoY. Free cash flow as of Dec. 31, 2020 was $4.9 billion.
CEO David Taylor remarked, “We delivered another strong quarter of results across all key measures – top line, bottom line and cash. We remain focused on executing our strategies of superiority, productivity, constructive disruption and improving P&G’s organization and culture.”
Buy-and-hold investors might want to keep the stock on their radar for a potential decline toward the $115 level. Seasoned investors are likely to know that P&G has had 64 years of consecutive dividend increases, making the company a Dividend King.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.