The retirement rules have changed. 30 years ago, being “in” retirement meant getting out of growth stocks, looking for income only – maybe even getting out of stocks altogether. The objective was to generate significant cash volume while minimizing risk. Those are still worthy goals, but the landscape for achieving them has changed. No longer can retirees count on fixed income staples like CDs or money market funds to generate the return they need to ensure they don’t outlive their money. Growth has become a necessity not just before retirement but into retirement. This is putting individual growth stocks back into play as part of an asset allocation strategy for a retirement portfolio. Fortunately, the landscape for growth stocks has changed as well.
When the words stocks and retirement are used, dividend stocks immediately come to mind, and with good reason. Dividend stocks have been a staple of many retirement portfolios. When considering a dividend stock, however, it’s wise not to simply chase the highest yield. Instead, investors should look for companies with a solid track record of delivering consistent dividends. These are the dividend aristocrats. They have issued a dividend in at least 25 consecutive years and, in many cases, have increased the amount of their dividend every year. As a retiree, that’s the kind of reliability you’re looking for. However, there are a number of dividend stocks that can also provide a healthy level of growth. This means that retirees can expect their portfolio to at least keep up with the cost of inflation in their golden years.
Quick Links
- AbbVie
- Pfizer Inc.
- AT&T
- Target
- Brookfield Infrastructure Partners LP
- EPR Properties
- Procter & Gamble
#1 - AbbVie (NYSE:ABBV)
AbbVie (NYSE: ABBV) - It stands to reason that a pharmaceutical stock would be a good dividend stock to consider in retirement. AbbVie is a name that may not be familiar to investors, but Abbott Labs probably is. AbbVie is a spin-off of Abbott Labs, allowing it to qualify as a dividend aristocrat even though it has only existed as a company for five years.
AbbVie has one of the more attractive dividend yields available at over 4%. In 2018, it increased its dividend by 50% from $2.56 per share to $3.89 per share. The stock also has a good valuation. It reached a high around $112 per share but has come down from that a bit. With a forward P/E ratio of around 11.8, it can be an attractive stock to add, particularly when investors consider the high dividend yield. Analysts are projecting a 40% increase in profits for the company in 2018 with future projections of 16% annual growth in the next five years.
But AbbVie is an attractive stock for another important reason. It owns the patent to Humira, the world’s best-selling drug. And even though that patent is set to expire which will bring in competition for Humira, the company has other drugs in its pipeline that should allow it to offset any losses from Humira’s patent expiration. And according to the research group, EvaluatePharma, AbbVie’s product pipeline was rated second-best in terms of value creation.
About AbbVie
AbbVie Inc discovers, develops, manufactures, and sells pharmaceuticals worldwide. The company offers Humira, an injection for autoimmune and intestinal Behçet's diseases, and pyoderma gangrenosum; Skyrizi to treat moderate to severe plaque psoriasis, psoriatic disease, and Crohn's disease; Rinvoq to treat rheumatoid and psoriatic arthritis, ankylosing spondylitis, atopic dermatitis, axial spondyloarthropathy, ulcerative colitis, and Crohn's disease; Imbruvica for the treatment of adult patients with blood cancers; Epkinly to treat lymphoma; Elahere to treat cancer; and Venclexta/Venclyxto to treat blood cancers.
Read More - Current Price
- $193.40
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $191.64 (0.9% Downside)
#2 - Pfizer Inc. (NYSE:PFE)
Pfizer Inc. (NYSE: PFE) - Pfizer is another pharmaceutical stock that is a favorite of dividend investors. It offers an attractive dividend yield of around 3%, has a payout ratio of around 57%, and has paid out dividends for over 80 consecutive years. That’s consistency investors can count on. But does its past predict its future?
In the pharmaceutical business, first to market is the name of the game. Pfizer’s revenue has suffered a bit in recent years due to expiring patents that allowed competition, particularly with lower-priced generic equivalents. Those cost pressures are going away as new products are ready to hit the market. Their current pipeline includes 28 late-stage programs with several other drugs pending regulatory approval. Their cancer drug, Ibrance, is one of the fastest-growing drugs in the world and the company is also reporting strong sales from Eliquis, which is a drug they co-market with Bristol-Myers Squibb.
With new products on the horizon and our country’s continued reliance on prescription medication, there is a place for Big Pharma in a retirement portfolio. Pfizer’s stock has a P/E ratio just below 12 giving it a very attractive valuation relative to its stock price which, although it is right around its 52-week high is still very attractively priced in the mid-40’s.
About Pfizer
Pfizer Inc discovers, develops, manufactures, markets, distributes, and sells biopharmaceutical products in the United States, Europe, and internationally. The company offers medicines and vaccines in various therapeutic areas, including cardiovascular metabolic, migraine, and women's health under the Eliquis, Nurtec ODT/Vydura, Zavzpret, and the Premarin family brands; infectious diseases with unmet medical needs under the Prevnar family, Abrysvo, Nimenrix, FSME/IMMUN-TicoVac, and Trumenba brands; and COVID-19 prevention and treatment, and potential future mRNA and antiviral products under the Comirnaty and Paxlovid brands.
Read More - Current Price
- $28.56
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 7 Buy Ratings, 8 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $34.54 (20.9% Upside)
#3 - AT&T (NYSE:T)
AT&T (NYSE: T) - With a dividend yield of around 6 percent, it’s hard to argue with the logic of considering AT&T in a retirement portfolio. It is a dividend aristocrat that is currently showing signs of being severely undervalued. It has a forward P/E ratio in the single digits (around 6.6), but analysts are still projecting approximately 15% growth for the year.
The stock has faced some challenges for sure. They have ranged from infrastructure concerns centered around the company’s need to upgrade to 5G technology, competition not only from other wireless carriers but from a nation moving away from cable television providers, and existential concerns such as the company’s association with a former attorney of President Trump, Michael Cohen.
But the storm clouds are passing, and value investors are seeing rays of sunshine. For one, AT&T is one of only a handful of wireless providers that will be able to take advantage of 5G technology, so that is one path to profit. Their recent purchase of DirectTV gives them both satellite and streaming TV service options that can make their bundled services more appealing and the stock is attractively priced.
In the final analysis, while the company still faces some challenges, the stock should be well positioned for growth and continued income via its dividend offering.
About AT&T
AT&T Inc provides telecommunications and technology services worldwide. The company operates through two segments, Communications and Latin America. The Communications segment offers wireless voice and data communications services; and sells handsets, wireless data cards, wireless computing devices, carrying cases/protective covers, and wireless chargers through its own company-owned stores, agents, and third-party retail stores.
Read More - Current Price
- $20.97
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 10 Buy Ratings, 8 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $22.06 (5.2% Upside)
#4 - Target (NYSE:TGT)
Target (NYSE: TGT) - The demise of traditional brick-and-mortar retailers such as Target may have been exaggerated. That’s good news for retirees who may be looking for a stock that has a little more value than a behemoth like Amazon. But is there a case to be made for Target? The answer is found in the words “omnichannel marketing”. Simply put, Target has found a way to compete with Amazon using their ability to reach their customers both online and with an in-store experience. This addition of a physical store footprint is giving well-managed retailers like Target an advantage over Amazon.
Now for the technical case. Target is currently trading well above its 52-week low and just below its recent 52-week high. It has a forward P/E ratio of just over 14 which is one-third of Wal-Mart and over ten times lower than Amazon. This suggests that even though the stock is approaching its record highs, there is still value to be found. Analysts seem to agree, forecasting nearly 15% profit growth for 2018, and five-year average annual growth of 7.5%.
And with a 47-year history of annual dividend increases, Target falls into the classification of a dividend aristocrat. Their current dividend yield is approximately 2.9% at $2.56 per share.
About Target
Target Corporation operates as a general merchandise retailer in the United States. The company offers apparel for women, men, boys, girls, toddlers, and infants and newborns, as well as jewelry, accessories, and shoes; and beauty and personal care, baby gear, cleaning, paper products, and pet supplies.
Read More - Current Price
- $151.28
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 19 Buy Ratings, 8 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $179.68 (18.8% Upside)
#5 - Brookfield Infrastructure Partners LP (NYSE:BIP)
Brookfield Infrastructure Partners LP (NYSE: BIP) - A buzzword hovering over our economy for the past few years is infrastructure. From railroads and toll roads to modernizing utilities and wireless technology, the United States is getting a makeover. For investors that makes infrastructure stocks a valuable piece of their portfolio. Brookfield Infrastructure Partners LP has assets in all the areas we mentioned above and many more.
But beyond that, BIP gives retirees what the opportunity for an attractive dividend yield with low risk, and the opportunity for continuing growth. BIP’s current dividend yield is 4.76% and is considered extremely safe because the company uses approximately 66% of their funds from operations (FFO) to make distributions to its general partners and unitholders.
The company is forecasting over $3 trillion in municipal infrastructure by mid-2020 just in the United States. When investors factor in projects from all over the world, the opportunities are even better. Asia is looking at $26 trillion in infrastructure investments in the next decade and an additional $6.7 trillion in water supply and sanitation investments between now and 2050.
About Brookfield Infrastructure Partners
Brookfield Infrastructure Partners L.P. owns and operates utilities, transport, midstream, and data businesses in North and South America, Europe, and the Asia Pacific. The company's Utilities segment operates approximately 2,900 km of electricity transmission lines; 4,200 km of natural gas pipelines; 8.1 million electricity and natural gas connections; and 0.6 million long-term contracted sub-metering services.
Read More - Current Price
- $31.08
- Consensus Rating
- Buy
- Ratings Breakdown
- 8 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $37.56 (20.8% Upside)
#6 - EPR Properties (NYSE:EPR)
EPR Properties (NYSE: EPR) - Real estate investment trusts (REITs) are another popular stock sector for retirees. The conventional wisdom is that baby boomers who are looking for senior housing can invest in REITs that specialize in that area. A contrarian play to that is to look at the generation that has become a larger generation than the baby boomers, the millennials. This generation is becoming known as the "experience" generation, and EPR Properties is well-positioned to take advantage of the buying power that comes from this demographic.
EPR Properties owns properties that focus on entertainment (such as megaplex theaters which are changing the experience of "going to the movies"), recreation (think ski resorts and golf complexes that are making a comeback) and education (public charter schools, private schools, and early education centers). Each of these areas is primed for growth particularly as the millennial generation now are having school-age children and they are looking to have experiences with them. To that point, the company is looking at expanding into other entertainment properties such as zoos, stadiums, live theaters, and race tracks.
EPR is a very attractive dividend stock, paying a yield of just below 6.5% with a dividend payout of less than 75% of its adjusted FFO. This means that the dividend should be very sustainable for the future.
About EPR Properties
EPR Properties (NYSE:EPR) is the leading diversified experiential net lease real estate investment trust (REIT), specializing in select enduring experiential properties in the real estate industry. We focus on real estate venues that create value by facilitating out of home leisure and recreation experiences where consumers choose to spend their discretionary time and money.
Read More - Current Price
- $47.34
- Consensus Rating
- Hold
- Ratings Breakdown
- 4 Buy Ratings, 3 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $48.06 (1.5% Upside)
#7 - Procter & Gamble (NYSE:PG)
Procter & Gamble (NYSE: PG) - No list would be complete without one of the bluest of the blue chips, Procter & Gamble. This venerable stock makes the list for many reasons. The company is a dividend aristocrat. They are a defensive stock because their products will continue to sell in any economy. They have well-known brands. Any of these reasons by themselves would be a reason to own the stock. But contrarians will ask, where is the growth? The stock has underperformed the S&P 500 over the past decade and in the first six months of 2018, P&G’s stock dropped 15% while the S&P 500 showed a 2% gain. The dividend yield, while attractive at 3.9%, does not put the stock in the elite category, even as a dividend aristocrat.
But P&G may very well be an example of a stock having the ability to perform better than the company. The company is seeking to reach out to younger customers, and its ability to capture millennials will tell that tale. However, the company remains a cash generating machine. They are efficient at holding costs down meaning that there will be plenty of room to continue to reward shareholders either through dividends or stock buybacks.
About Procter & Gamble
The Procter & Gamble Company provides branded consumer packaged goods worldwide. It operates through five segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. The Beauty segment offers conditioners, shampoos, styling aids, and treatments under the Head & Shoulders, Herbal Essences, Pantene, and Rejoice brands; and antiperspirants and deodorants, personal cleansing, and skin care products under the Olay, Old Spice, Safeguard, Secret, and SK-II brands.
Read More - Current Price
- $175.59
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 15 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $175.79 (0.1% Upside)
One of the hardest things to adjust to in life is change. But for current retirees, change is something that they need to embrace. The old rules of retirement no longer apply. There is now not only a place for growth in a retirement portfolio, but it is also virtually a must.
The good news is that there are a number of growth stocks that provide the attractive benefits of dividend investing with an underlying business model that provides an exceptional opportunity for growth. From pharmaceutical companies to real estate, there are good stocks in sectors that will continue to flourish in any economy.
Investing in individual growth stocks is not without risk. As an investor, it’s important for you to understand your personal risk tolerance when you decide whether or not to add a growth stock to your retirement portfolio.
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