Best Retirement Stock Opportunities for April 2017
March 29, 2017
Retirement Stocks to Buy in April
Your retirement goals could be achieved many different ways, one of which is by working for a company that offers a pension plan. Then, once you work for a certain amount of years and factoring in your age, you can apply for retirement.
However, another way to retire is by investing your personal wealth. This would put the control of when you retire in your hands.
One way to invest your money for retirement is by owning dividend-paying stocks, which pay shareholders since they are part owners of the company. Now, I would not simply go out and buy the first few stocks you find. Instead, determine the best dividend-paying stocks for retirees. I’ll explain this further below.
Can You Retire on Dividend Income?
This strategy of using dividend stocks to achieve your retirement goals requires patience and a long-term perspective on the investments.
In order to fund your retirement using a dividend income strategy, look at companies with a safe payout. Such businesses should have a dividend in place while continuing to offer a steady payment. The company’s history should help confirm this, as well as if the dividend risks being reduced, if not eliminated.
But what in that history is relevant? Well, in regards to “steady earnings,” research past reported revenue. This will provide insight on what the future revenue pattern could look like. As for “predictable earnings,” these would be based on prior earnings and the products and services the business sells, which should perform well in both a good and bad economy.
Since inflation is a big concern when planning for retirement, I would recommend choosing companies that offer dividend growth stocks, which pay a higher dividend per share as time passes. Dividend growth stocks are also more likely to provide a safe dividend payment.
Companies that grow their dividend also do so because they can afford to. Their revenue and earnings are also affected by inflation, but said inflation costs are passed down to customers. Dividend growth companies would also see their share price increase as a result, since investors bid up the price to receiving the growing payout.
So, interested in funding your retirement by investing in dividend-paying stocks? If so, then read on for a list of, in my opinion, some of the best retirement stock opportunities.
Best Retirement Stocks for 2017
| Company Name | Stock Symbol | Price | Dividend Yield | Number of Years of Dividend Growth |
|---|---|---|---|---|
| AT&T | T |
$41.49 |
4.72% |
32 |
| CVS Health Corp. | CVS |
$78.51 |
2.55% |
9 |
| Kimberly Clark Corp. | KMB |
$132.36 |
2.93% |
44 |
| T. Rowe Price Group Inc. | TROW |
$67.63 |
3.37% |
30 |
| PepsiCo. Inc. | PEP |
$111.83 |
2.69% |
44 |
| AFLAC Incorporated | AFL |
$71.84 |
2.39% |
34 |
| Tesoro Logistics LP | TLLP |
$52.01 |
7.00% |
6 |
1. AT&T Inc.
AT&T Inc. (NYSE:T) is one of the largest telecommunications companies in the U.S. based on the overall size and the number of customers. AT&T also operates in an oligopoly, an environment that only has a few major competitors and high barriers to entry, preventing change.
AT&T is, of course, fully up and running, meaning regular costs rarely extend beyond basic maintenance. This would be considered as a competitive advantage and comes with many rewards, including predictable recurring revenue which does not see much volatility.
Since not a lot of capital needs to be reinvested into the business, earnings are used to reward shareholders. Shareholders receive a dividend payment that has seen growth each year for the past 32 years. And with a strong cash flow business and recurring earnings, there is a high possibility of seeing further growth.
2. CVS Health Corp.
CVS Health Corp. (NYSE:CVS) is a pharmacy and healthcare company operating in the United States.
CVS stock has been paying a dividend for the past two decades and has increased it for nine consecutive years. The growth rate of the dividend over this period has been 733%, with the policy reviewed annually in December.
This dividend, too, has the potential to grow. The first piece of evidence is the payout ratio of 34%, which means that from each dollar of earnings, $0.34 is paid as a dividend.
Assuming the payout ratio stays the same, the remaining portion of earnings is reinvested into the business for the sake of more revenue and growth, which provides more evidence of possible dividend growth . Looking at a five-year picture, both revenue and earnings are up more than 40%. (Source: “CVS Health Corp.,” MarketWatch, last accessed March 27,2017.)
A huge positive catalyst for CVS stock will be the growing population of seniors in the U.S.
With the number of Americans over the age of 65 expected to double between 2012 and 2050. As more people become older, there will be a higher demand for pharmacies and healthcare goods and services, and CVS is perfectly positioned to satisfy to growing demand. (Source: “An Aging Nation: The Older Population in the United States,” United States Census Bureau, last accessed March 27, 2017.)
3. Kimberly Clark Corp.
Kimberly Clark Corp. (NYSE:KMB) is engaged in manufacturing and marketing of personal care products, consumer tissues, and commercial health care products. KMB stock is a great retirement stock opportunity for many reasons.
Kimberly Clark has been operating its business for more than 100 years and has been a dividend payer for the past 82 years, during which it has not missed any dividend payments. Another impressive feat by the company is that the dividend has seen an annual increase for 44 years.
Many of the products sold by Kimberly Clark are considered recession-proof–sales would continue to be generated in a recession as compared to a booming economy. This would provide preservation of capital to the share price and will ensure the dividend continues its streak of not missing a payment.
Another reason why Kimberly Clark is a potential best long-term retirement stock is the low volatility seen from the daily price movement. This is measured using KMB stock’s beta of 0.70, compared to the market beta of 1.0. On average this would result in Kimberly Clark falling of 0.70% on a down day on the markets, compared to one percent for the overall markets.
4. T.Rowe Price Group Inc
T.Rowe Price Group Inc (NASDAQ:TROW) is a financial company with a focus on investment management for both retail and institutional clients, record keeping, and offering pooled investment products to the markets.
TROW stock is a very unique retirement stock opportunity. It pays a regular quarterly dividend, which has increased for the past 30 years.
But on top of the regular quarterly dividend, TROW stock has also paid a special dividend a few times. This has occurred due to surplus cash during times with no other investment opportunities available.
Back in 2012, when the annual dividend was $1.36, a special dividend of $1.00 was paid out. The next was in 2015 for $2.00, alongside annual dividend payment of $2.08. Needless to say, this method of returning money back to shareholders that are looking to retire can help them achieve their goals much quicker than expected.
One of the major reasons that TROW stock is able to pay a growing dividend and special dividend is because of a lack of debt. Also, earnings are both steady and growing, thanks in part of an increase in assets.
5. PepsiCo, Inc.
PepsiCo, Inc. (NYSE:PEP) is a company with a global presence and a focus on selling food and beverage products. PEP stock is a quality dividend stock for retirement.
When it comes to rewarding shareholders, there are a few different methods used. One is paying out a dividend, which has grown for the past 44 years and looks to continue to do so. Currently, approximately 58% of each dollar of earnings is paid out as a dividend.
Another reason for further dividend growth would be because the company’s products are inflation-protected. Therefore, like explained earlier, inflation costs are passed to the end customer. This maintains the gross and net margins of the business.
Another reward method used is share buybacks. In February 2016, a $7.0-billion share repurchase plan was announced. This reduces the overall the number of shares that are available for purchase on the trading exchanges, and leaves investors owning a greater portion of the company. Buybacks also provide support to the share pric,e since there will be continued buying of the shares. (Source: “PepsiCo Reports Fourth Quarter and Full-Year 2015 Results,” PepsiCo, Inc., February 11, 2016.)
6. AFLAC Incorporated
AFLAC Incorporated (NYSE:AFL) has operations in the insurance segment of the market in the U.S. The main area of focus is health and life insurance.
AFL stock is part of the S&P 500 Dividend Aristocrat Index, consisting of stocks belonging to Fortune 500 companies that have grown their dividend for at least 25 consecutive years. At present, AFL stock has increased their dividend for 34 years straight.
AFL stock has a very conservative payout ratio which is 27%. There is plenty of room for the management to increase the dividend well into the future.
A positive catalyst for AFL stock is the direction of interest rates in the U.S. Interest rates are currently near there historic lows and have slowly started to gradually move higher. As this trend continues, gross and net margins should increase. This is because AFLAC’s business model is to invest clients’ money in an attempt to generate a higher return compared to the payout amount.
7. Tesoro Logistics LP
Tesoro Logistics LP (NYSE:TLLP) is an energy company with a focus on transporting crude oil and and natural gas through its pipeline assets.
Investors tend to look at the energy sector as a higher-risk sector because the price of energy products and the company’s performance will affect earnings greatly. Also, it is known to be a very volatile segment, based on the daily movement of a stock’s performance. However, TLLP stock operates in a “boring” part of the energy sector, where the daily volatility does not apply.
Tesoro is known as a cash flow machine. The pipeline business is based around transport, meaning the company is not mining, which requires spending a lot of money on only the potential for a jackpot. And the energy companies that do take the risk and mine are the ones that come to Tesoro for their transportation needs. This enables Tesoro to provide its services to many different energy companies, which diversifies its customer base. The company’s operating cost are also inflation-protected
TLLP stock is also favored compared to other forms of energy transportation due to being cheaper and more efficient. When it comes to transportation, the cost of pipelines it cost a third of that of railway carts. Also, railways have a great chance of seeing a spill. (Source: “Safety in the Transportation of Oil and Gas: Pipelines or Rail?,” Fraser Institute, last accessed March 27, 2017.)
