Today’s markets are certainly wild. The past few weeks have shown that things can fall quickly. And yes, this can make it tough when coming up with retirement stocks for your portfolio.
So, what should you do? Well, one good strategy is to look at investments that have high yields, say over 4% or so. Of course, a good reason for this criteria is ongoing income, which can compound over the long-term. This can then provide a shield from taxes, so long as you have a vehicle like an IRA.
Next, companies that have high dividends usually have strong underlying businesses that generate solid cash flows. This means there is more firepower to buy back stock and make acquisitions.
So, with those specifications in mind, what stocks look good for retirement? Here’s a look at seven different names for your nest egg:
- AT&T (NYSE:T)
- Pfizer (NYSE:PFE)
- BHP Group (NYSE:BHP)
- Philip Morris International (NYSE:PM)
- Gilead Sciences (NASDAQ:GILD)
- Kraft Heinz (NASDAQ:KHC)
- IBM (NYSE:IBM)
Retirement Stocks to Buy: AT&T (T)
In 2015, AT&T shelled out $48.5 billion for DirecTV. Unfortunately, though, that deal turned out to be a huge mistake. The business has suffered ongoing erosion of its revenues and customer base, driven primarily by the trend of cord-cutting.
However, AT&T is now going to spin off DirecTV — as well as other video assets like AT&T TV and U-verse — into a new entity. The deal will involve a complex set of transactions that will result in an infusion of $7.6 billion from TPG Capital, which is a large private equity firm. AT&T will then get ongoing cash flow and retain 70% equity. Some analysts also believe that this deal will set the company up for a potential merger with another large operator in the future, such as Dish Network (NASDAQ:DISH).
For the most part, though, this transaction is a way for AT&T to diversify away from this business and focus more resources on growth areas. Perhaps the most important of these areas is streaming, which AT&T has access to through its subscriber-rich HBO Max service.
Of course, AT&T has a long-term opportunity in 5G, too. This could lead to new revenue streams from enterprise customers, such as for Internet of Things (IoT) deployments and even automated factories.
In the meantime, the core entertainment and mobile businesses behind AT&T remain strong generators of free cash flows. For 2021, free cash flow is expected to be about $26 billion.
And when it comes to T stock, it’s trading at just 9.48 times forward price-earnings (P/E). Plus, the dividend yield is an attractive 6.98%. That makes it a compelling name among retirement stocks.
Pfizer’s development of a Covid-19 vaccine — along with the help of Biontech (NASDAQ:BNTX) — is a remarkable achievement. It is a demonstration of the company’s ability to work swiftly and meet enormous challenges. Pfizer’s vaccine was also an illustration of the power of messenger RNA (mRNA), which could prove effective for many other treatments in the future.
No doubt, Pfizer will generate substantial revenues from these efforts. In fact, the estimate is a whopping $15 billion in vaccine sales for this year alone.
Despite all of this, though, Wall Street has essentially ignored PFE stock. Since early December, the shares have gone from around $42 to $35.
But it does look like investors are making a mistake. After all, Pfizer’s forward P/E is compelling, at only about 10.45. The dividend is also at a hefty 4.46%. All in all, this should be a pretty good name to pick from the retirement stocks.
BHP Group (BHP)
When looking at retirement stocks, it’s a good idea to diversify into commodities. This can help protect against inflation, which could be a potential problem in the years ahead.
Right now, one of the top players in the commodities business is BHP Group. Founded in 1885, the company has an extensive set of valuable assets across the world. BHP has mines are for things like copper, iron, coal, nickel and potash. The company even has a petroleum unit.
This company’s business generates significant profits. For the second half of last year, they came to $6.04 billion, up 16% on a year-over-year (YOY) basis. One major catalyst for this has been the rise in iron ore and copper prices. And, when Covid-19 fades away, there should be even more demand for commodities as economic growth resumes.
Even though BHP stock has had a nice rally, the valuation is still reasonable. Currently, the forward P/E ratio is 14.52. The dividend yield is 4.18%.
Philip Morris International (PM)
The past decade has seen the rise of so-called ESG (Environmental, Social and Governance) investing. Basically, more people want their investments to promote important causes.
No doubt, this has been a major issue for Philip Morris International. But the company has also been making changes with its product line in response. For example, it has set itself a goal of having “more than 50% of group revenues from smokeless products like its IQOS heated-tobacco sticks by 2025.” PM will also be making investments in more non-nicotine offerings.
It’s not clear that this will make much of a difference. However, these efforts are still a step in the right direction. Besides, this new strategy should help with the growth ramp.
As far as PM stock goes, this pick of the retirement stocks is at compelling value levels, with a forward P/E ratio at 14.7 times. The dividend yield is 5.47%.
Gilead Sciences (GILD)
Gilead Sciences has many things going for it, but maybe most relevant is its drug, remdesivir, which has been critical in treating patients with the novel coronavirus. In fact, the company expects to make revenues of $2 billion to $3 billion from remdesivir in 2021. And while this drug may be facing a “short shelf life,” its success is encouraging, as it can be used for other indications.
On top of that, Gilead has some other promising candidates in its pipeline that can help with growth. For instance, Trodelvy looks like it will be effective against breast cancer. Annual revenues for that drug could come to around $1.8 billion.
Then there is lenacapavir, which is targeted at HIV. That drug can be administered via injection (twice a year) or by a pill (every week). It’s estimated that that drug could lead to $9 billion in annual revenues.
Plus, when it comes to GILD stock, it is definitely cheap. Right now, the forward P/E ratio is 8.58 and the dividend yield is 4.61%. As one of the retirement stocks, it’s pretty attractive. According to Jefferies analyst Michael Yee, GILD is a “low-expectations, cheap/inexpensive, turn-around story for 2021 with sentiment pretty low yet a new year on the horizon and business is doing fine.”
Kraft Heinz (KHC)
Kraft Heinz is one of the most durable retirement stocks on this list and should provide stable returns for a retirement account. Just some of its brands include Jell-o, Velveeta, Philadelphia and Oscar Mayer.
Believe it or not, the Covid-19 pandemic has boosted this company’s business. That’s because consumers have increased their packaged-goods spending due to more time spent at home.
But Kraft Heinz has been restructuring its operations as well. Part of this effort has included reduced costs and a simplification of its product line. There have also been divestitures, such as with its Planters, Cheez Balls and Corn Nuts brands.
Another key to KHC’s strategy has been investments in its e-commerce platform. Over the past year, Kraft-Heinz saw 100%-plus growth to $1.5 billion for its e-commerce segment (Page 14).
So, KHC stock has done well during the past year. However, its valuation is still at attractive levels. Right now, the shares trade at 14.9 times forward earnings. The dividend yield is 4.2%.
Over the past decade, IBM stock has gone from as high as $215 to today’s price of around $128. The company has been slow to adapt to new technologies like cloud computing. However, investors should not throw in the towel on this pick of the retirement stocks. The future is actually looking bright for IBM.
The fact is that the company has been investing heavily in next-generation technologies like artificial intelligence (AI) and quantum computing. There has also been a retooling of the cloud business. IBM’s strategy is to have a hybrid approach, which will likely be more amenable for large enterprise customers.
The company’s acquisition of Red Hat should be a nice driver too. With this, IBM has become one of the largest players in the fast-growing open source market.
Given the fall in its stock price, it should be no surprise that IBM stock is trading at low levels. Right now, the P/E is only 11.57 times. Plus, at 5.11%, this stock has one of the highest dividend yields in the tech industry.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article except PFE.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.