Retirement planning should include a strategically allocated stock portfolio. Young investors who save into a 401(k) or IRA accumulate stocks for the growth they can provide over the long term. Conversely, retirees generally prioritize income investments with dividends helping to replace earned income from working.

Retirees should be careful to have a balanced investment approach. Too much volatility can destroy a retirement plan, but an overly conservative approach can hamper lifestyle later in retirement if a portfolio fails to keep up with inflation or rising costs for healthcare. Investors should therefore make sure they have the proper ratio of stocks and bonds, and they should make sure that their equity investments are allocated to the right types of companies. Retirement stock portfolios should be well diversified, and they should have exposure to companies with stable dividends, strong yields, operational stability, and relatively low volatility. 

The following three stocks exhibit all the important characteristics that investors should favor in retirement.

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A diversified healthcare giant with growth opportunities

Johnson & Johnson (NYSE:JNJ) is a $400 billion healthcare company that sells consumer goods, branded pharmaceuticals, and medical devices. Brands such as Band-Aid, Listerine, and Tylenol, along with other common home care and cosmetic products, are predictable businesses with relatively stable demand across economic cycles. 

J&J’s pharmaceutical segment has numerous blockbusters and a robust pipeline across multiple categories, including immunology, infectious disease, oncology, neuroscience, and cardiovascular. Popular drugs such as Stelara, Imbruvica, Darzalex, and Remicade drive annual sales above $40 billion and have helped the company sustain wide profit margins. 

The company’s medical device segment offers orthopedic, surgical, and vision products that generate more than $20 billion in annual sales. This is a competitive industry that is also more sensitive to economic conditions, but Johnson & Johnson is still one of the global device market leaders that will continue to grow in the long term. 

Investors should expect continued modest growth in both sales and profits for Johnson & Johnson. The stock trades at a reasonable 16.9 forward P/E ratio and 15.5 enterprise value (EV) to EBITDA. Because these valuation metrics are below the average value for both the S&P 500 and the healthcare sector, J&J provides some cushion to the downside. The stock also pays a 2.6% dividend yield to kick off the income that is so important for retirees. 

A telecom leader with growth potential and strong yield

Verizon (NYSE:VZ) is the largest telecommunications company in the U.S., providing service and hardware to businesses and consumers. Operating large network infrastructure requires massive investments in physical network equipment across the country, creating a moat that makes it nearly impossible for new contenders to quickly challenge the incumbents. People are also unlikely to discontinue mobile device services during recessions, making service provider revenue fairly resilient in a similar way to utilities. 

Further, Verizon is one of the leaders in the rollout of 5G, which will enable the growing number and complexity of connected devices and stimulate earnings growth.

Verizon investors should expect positive slow growth in the medium term, so this is a stability story that should resonate favorably with retirees. Growth investors are largely disinterested in the stock, keeping the valuations at a reasonable 11.8 forward P/E ratio and 8.8 EV/EBITDA, which limits the volatility that investors should expect.

Importantly, Verizon stock currently pays a 4.2% dividend yield, which is more than double the S&P 500 average. Retirees will enjoy this amount of income from their invested dollars, and it is reasonable to expect quarterly dividends to continue growing at a modest pace.

A steady basic consumer goods brand

Hanesbrands (NYSE:HBI) designs, manufactures, and markets basic consumer apparel and accessories in the U.S. and internationally under a number of well-known brands. This is a mature, low-growth business that enjoys some resistance to economic cycle fluctuations. It has also averaged roughly 5% annual revenue growth, which is expected to continue. 

Investors should be aware of the company’s financial leverage, meaning it finances its operations with a relatively high amount of debt. Hanesbrands’ 3.9 debt-to-equity ratio is somewhat high but by no means unmanageable. Interest coverage of 4.1 and a 2.03 current ratio also indicate suitable financial health, but the company’s debt obligations could become an issue if it experiences a serious earnings crisis.

Having navigated the past two steep economic recessions effectively, Hanesbrands investors enjoy reasonable valuation metrics along with a healthy 4.1% dividend yield. That sort of income along with likely price stability relative to the rest of the market should be attractive to retirees.


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