Passive investing in equities for retirement requires prudent, conservative allocation of resources into those equity securities that assure stable or consistently rising income streams with little volatility of price returns over time; discover one particular market-beating strategy here. Preferable are stocks of companies that have earnings power and consistency through all business cycles. Boring and defensive is what generally has been the norm among conservative retirement investments in stocks.
Focusing on stocks that can deliver a combination of dependable dividend income and capital appreciation over time, here is a list of five potential retirement stocks. These stocks were selected based on the following characteristics:
1). Dividend yields of at least 3%, above the current 10-Year Treasury bond yield of 2.16%
2). Long-term historical dividend growth above the rate of inflation
3). Low variability of returns
4). Betas below that of the broader market
5). Capacity to sustain earnings and dividends through business cycles
6). Diversification across several industries
Johnson & Johnson
Johnson & Johnson (NYSE:JNJ), a pharmaceutical giant boasting 51 years of consistent dividend growth, is as dependable for dividend income as it gets. The company has been in operation since 1886, and has a record of 29 years of consecutive increases in adjusted EPS. It is poised for additional years of EPS expansion, driven by its diversified product mix (comprising of drugs, medical devices, and consumer products) and a robust development pipeline. In addition to its earnings consistency, Johnson & Johnson (NYSE:JNJ)’s low-volatility of returns, beta of only 0.48, dividend yield of 3.0%, and consistent dividend growth—averaging 7.9% over the past five years—make it a strong candidate for long-term retirement portfolios. Its balance sheet is rock solid, and features low debt relative to equity. The company is a free cash flow powerhouse, as it converts 114% of its net income into free cash flow.
Johnson & Johnson (NYSE:JNJ) has several catalysts for continued growth in the future, which should support its earnings and total returns. These catalysts include aging demographics, rising incidence of chronic diseases, and growing incomes in emerging markets. With the pharmaceutical market expected to grow at a CAGR of 4.5% through 2017, according to IMS Health, Johnson & Johnson (NYSE:JNJ) is planning to submit 10 new products filings by 2017. Drug introduced over the past few years, including Zytiga for prostate cancer and Invokana for diabetes, have already mitigated revenue losses from Johnson & Johnson (NYSE:JNJ)’s patent cliff. These and other products introduced since 2009 are expected to account for nearly half the overall sales by 2017. Contributions to growth will also come from the medical devices and consumer goods markets. The global medical devices market is expected to expand at a CAGR of 6.1% for the next five years, according to Lucintel, a global market research firm, while demand for consumer goods will receive a major boost from emerging markets.
SCANA Corporation (NYSE:SCG), an electric utility company with operations in South Carolina, North Carolina, and Georgia, is another candidate for retirement portfolios. The company has been in operation for 160 years. Its consistent earnings performance has enabled it to increase dividends for 12 consecutive years now. The company operates in a favorable regulatory environment, whereby regulated earnings from electricity and natural gas utilities provide stability to cash flows and, thus, to dividends. Utilities are generally the least economically sensitive sectors, characterized by low operational risk, which is the case with SCANA Corporation (NYSE:SCG). Moreover, as a utility stock, SCANA Corporation (NYSE:SCG) has low variability of returns relative to its own average return and the market’s returns as measured by the stock’s beta that is only half the metric for the overall market.