In retirement, investors need income and stability. While bonds provide income, they might lack adequate appreciation to grow an investor’s nest egg. In contrast, cheap retirement stocks are important portfolio components that provide potential appreciation and income.

According to Hartford Funds, dividends have comprised a large share of market returns. Therefore, investing in retirement stocks must include dividend-paying stocks.

Retirees need income to cover their living expenses. High-potential retirement stocks paying a consistent dividend provide the required passive income. Typically, good retirement stocks have a high dividend yield above 3%.

But the yield alone is not sufficient. These dividend payments must be sustainable. Therefore, the payout ratio – the percentage of earnings paid out as dividends – must be low. A ratio above 100% of profits might indicate poor fundamentals and a dividend cut on the horizon.

Besides yield, growth is also another consideration. Dividend growers support an increasing passive income stream over time. Finally, revenues and earnings growth should be consistent to reduce volatility and minimize portfolio drawdowns. Usually, the ability to pay dividends highlights the company’s overall quality.

The following stocks are cheap retirement stocks to consider. First, they have established companies with stable earnings growth in the next five years. Also, they exhibit all the above characteristics and are high-potential retirement stocks.

Lastly, they have a history of raising dividends and their current yields are above 3%. And their payout ratios are below 80% supporting rising dividends in the future.

Goldman Sachs Group (GS)

Despite the rough 2-year period Goldman Sachs Group (NYSE:GS) has had, it’s one of the July retirement stocks to buy. Indeed, the company has faced a challenging macro-environment.

First, the IPO market dried up in 2022 after the Federal Reserve (FED) began rate hikes. As a result, investment banking and underwriting fees fell 47% in 2022. Then in March, the banking turmoil led to another sell-off.

But Goldman Sachs is a quality franchise and is the best investment bank in the world. Businesses rely on its services in raising capital, mergers and acquisitions, divestitures, spin-offs, and restructurings. As soon as macro uncertainty dissipates, the global banking and markets segment will recover.

For now, it falls into the cheap retirement stocks category at a forward price-to-earnings (P/E) of 8. GS stock offers a healthy 3.16% dividend, which has grown for 11 years. Furthermore, with a payout ratio below 40%, there is plenty of room for dividend increases. A recent example is the 10% increase after passing the FED stress tests.

Although total revenues dropped by 24% in 2022 due to the IPO market collapse, business prospects are attractive going forward. The FED is near the end of its rate hike cycle. As a result, the IPO market is opening again with some successful listings. Recent IPO listings like CAVA (NYSE:CAVA) have had a favorable reception.

In addition, the poorly performing consumer business has been a significant drag on earnings. It’s winding down parts of the business and looking to sell the loss-making segment. Already it is in talks with American Express (NYSE:AXP) to offload its Apple card partnership. If this happens, there will be earnings improvement.

Philip Morris International (PM)

Historically, sin stocks have been known for their reliable dividends. Regardless of the economic situation, people rarely give up indulgences like cigarettes. That’s why Philip Morris International (NYSE:PM) is one of the must-buy cheap retirement stocks.

It is the second largest cigarette maker based on global revenues behind British American Tobacco (NYSE:BTI). The company produces popular brands such as Marlboro and sells its products in over 180 countries worldwide.

Due to its steady revenues and earnings, the company has grown its dividend for 14 consecutive years. Thus, for those investing in retirement stocks, it’s a stable stock with dividend growth potential. As of this writing, PM stock yields a remarkable 5.1%.

While ESG’s concerns regarding its tobacco products have been a headwind, the company is addressing the challenge. It has been rapidly growing its smoke-free portfolio.

In 2022, total revenues were $33.43 billion. $10.2 billion, equivalent to 32.1% of revenues, was from smoke-free products. Going forward, the company plans to increase its smoke-free revenues. At the CAGNY Conference in February, management disclosed that the company is on track to derive more than 50% of revenues from smoke-free products by 2025.

That’s why the company is investing in its smoke-free products under the IQOS brand and making acquisitions. In 2022, it finalized the purchase of Swiss Match, a smoke-free oral nicotine leader. Phillip Morris hopes to accelerate its transformation into a smoke-free company through these initiatives.

As of this writing, the stock trades at 15 times forward earnings. Barclays maintains a “buy” rating and a $115 price target. They expect growth to accelerate to 9% citing strong volumes, higher pricing, and ZYN product growth.

Pfizer (PFE)

Year-to-date, Pfizer (NYSE:PFE) has had a steep sell-off leaving it at 52-week lows. The company was a massive beneficiary of the Covid-19 pandemic. However, vaccine revenues are declining, and the market is worried about the growth outlook.

As Covid-19 vaccine revenues shrink, the company is struggling for growth. Upcoming patent expirations have further exacerbated this challenge. To reinvigorate its growth, the company struck a $43 billion acquisition of Seagen (NASDAQ:SGEN) in March.

Unfortunately, investors are skeptical, given the challenging regulatory stance of the Federal Trade Commission (FTC) on mergers and acquisitions. Altogether these pressures have worsened the sentiment on PFE stock and its hovering near 52-week lows.

This weakness presents an opportunity in one of the best cheap retirement stocks. Pfizer is one of the greatest pharmaceutical companies. Today this is still true. As management highlighted in the first quarter fiscal year 2023 results, growth was 5%, excluding Covid products.

Furthermore, the company has a robust drug pipeline to replace Covid-19 revenues and expiring patents. It expects $20 billion in revenues by 2030 from New Molecular Entity (NME) and new indication launches. According to management forecasts, new business development deals will also add $25 billion in sales by 2030.

In terms of dividends, the stock yields a respectable 4.60%. And with a low 26% payout ratio, the dividend growth record is likely to continue.

Per their guidance, management expects at least 3.25 in adjusted diluted EPS. Thus, as of this writing, the stock trades at a cheap 11 times forward P/E. With long-term growth intact due to the robust pipeline, PFE stock is among the top cheap retirement stocks to buy.

On the date of publication, Charles Munyi did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.