Buying stocks in retirement may seem like a risky proposition, but there's no denying that investing in high-quality dividend stocks is one of the best ways to predictably create and sustain wealth over long periods. But not all dividend stocks are created equal.
To help get you started, we asked three top Motley Fool contributors to each find a stock they believe is perfect for retirees. Read on to see why they chose Corning (NYSE: GLW), ExxonMobil (NYSE: XOM), and Kraft Heinz (NASDAQ: KHC).
Small figurine looking at three successively taller stacks of coins
IMAGE SOURCE: GETTY IMAGES.
A proven tech leader
Steve Symington (Corning): Shares of Corning are trading nearly 20% below their 52-week high as of this writing, but not as a result of the company's underlying performance. Rather, the glass technologist has pulled back largely along with the broader market in recent months.
But I think that makes a fantastic opportunity for any investor, particularly retirees, to open or add to their position in Corning. As it stands, the 168-year-old tech giant still has a year remaining under its strategy and capital allocation framework introduced in late 2015. Through that framework, Corning is on track to meet its goals for both investing $10 billion toward capturing future growth opportunities -- the fruits of which finally began to show with its most recent quarterly report in October -- and returning at least $12.5 billion to shareholders through stock repurchases and dividends. On the latter, Corning pledged to raise its payout by at least 10% each year under the framework -- and after the pullback, its dividend now yields a healthy 2.4% annually.
Retirees should know, however, that this kind of shareholder-friendly approach is nothing new. In fact, I would be stunned if, when Corning's current strategy and capital allocation framework technically concludes later this year, the company didn't simply replace it with another equally ambitious multi-year initiative aimed at compounding the momentum it has already built. That alone makes it a compelling option for investors willing to buy now and trust that Corning will extend its proven knack for beating the market over the long term.
Big yield from a slow and steady giant
Reuben Gregg Brewer (ExxonMobil): Oil is a volatile commodity, a fact on display right now. The oil bear market, meanwhile, has driven Exxon's shares lower and its yield up to around 4.7% -- the high end of its historical range. Retirees looking to add a little income to the mix should be intrigued.
Exxon is one of the world's largest and most diversified energy companies. It's built to withstand the industry's ups and downs. That it was able to keep increasing its dividend right through the deep oil downturn that started in mid-2014 is clear evidence. Most of its peers either paused dividend increases or cut their dividends.
How did it survive that last downturn in stride, and why is it likely to do the same this time around? First, its operations span the upstream (drilling) and downstream (chemicals and refining) sectors. When oil prices fall, Exxon's downstream operations benefit from lower input costs. That helps offset weakness on the drilling side and smooths out results.
Second, Exxon is very conservatively managed. Even during the worst of the last oil downturn, long-term debt never rose above 15% of the capital structure. Entering the current soft patch, long-term debt is at just 10% of the capital structure. The oil giant has plenty of balance sheet strength to support its business plans no matter what the oil market does today. And that should see it through to the next upturn. In fact, its 2025 investments plans were stress-tested all the way down to $40 per barrel oil. If you can stomach some near-term uncertainty, Exxon looks like a good income opportunity today.
A packaged-goods giant with a 5.5% yield
Leo Sun (Kraft Heinz): Kraft Heinz is a creation of the merger of Kraft Foods and Heinz in 2015 -- which united Kraft, Heinz, Oscar Mayer, Kool-Aid, and other well-known brands under the same umbrella. Yet Kraft Heinz struggled after the merger, as consumers pivoted from packaged foods to healthier products. Its management, appointed by private equity firm 3G Capital, also focused too heavily on cutting costs instead of investing more cash into the expansion of its business or new marketing campaigns.
However, Kraft Heinz's organic sales rose 2.6% last quarter and broke a multi-year streak of declines, as higher sales volumes offset its lower prices. It also recently acquired Primal Nutrition, a maker of paleo-friendly food products with no preservatives and artificial ingredients, and organic-coffee maker Ethical Bean.
Those moves should help Kraft diversify its portfolio beyond its core products and grow its revenues again. It expects its organic sales to be positive in the fourth quarter of fiscal 2018, and for that growth to continue in fiscal 2019.
Analysts expect its revenue to stay flat this year as its earnings rise 2%. Those growth rates seem anemic, but that slow and steady growth is ideal for retirees. The stock also looks cheap at 12 times forward earnings and pays a high forward dividend yield of 5.5% -- which it's raised every year since the merger. It spent just 30% of its earnings on its dividend over the past 12 months -- so it has room for future increases.
Kick back and let your portfolio do the work
Of course, nobody can guarantee these three stocks will go on to beat the market. But whether we're talking about Corning's investments in growth and generous capital returns, Exxon's particularly durable business and conservative management, or Kraft Heinz's juicy dividend and steady growth, we think they offer an ideal balance for retirees seeking capital preservation, income, and potential share price appreciation.
Leo Sun has no position in any of the stocks mentioned. Reuben Gregg Brewer owns shares of ExxonMobil. Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Corning. The Motley Fool has a disclosure policy.
