The markets have been very volatile recently. And not just the UK stock market, markets around the world have shown to be very volatile in the past few weeks. Whilst this kind of volatility is not good for anyone, it is especially troublesome for people in retirement
But the truth is that if you are in or near retirement, what happens in the market on a daily should not worry you. After all you are in retirement and deserve to lead a worry free life. With that said, when planning your financial situation, you need to be invested in a portfolio that allows you to sleep well at night – a portfolio that provides stable, if not necessarily spectacular, returns.
Whilst having an investment portfolio is a subject on its own, this article discusses what the best worry free stocks are too hold in retirement.
A good retirement stock should possess the following characteristics.
1) Its underlying business should be stable and predictable. You don’t want to bet your retirement on a faddish new technology or on a hit-or-miss biotech gamble.
2) The company should have a long history of taking care of its shareholders. This should ideally be done by regular dividend hikes but also potentially via share buybacks.
3) The company should be financed responsibly. As seen in 2008, stable business ran into severe distress when their access to the lending markets were cut off during the crisis.
So with my three characteristics set out, et’s jump into three of my favourite stocks for a worry-free retirement.
Unilever PLC (ULVR)
The king of consumer staples and the ultimate defensive stock in my opinion. If you’ve ever set foot in a supermarket anywhere in the world, then you are familiar with Unilever’s brands. Among many others, they include: Ben & Jerry’s, Dove, Flora, Lynx, Persil, Radox, Vaseline and Walls. Unilevers diverse range of stocks means that they are unlikely to fall to technological obsolescence or a black swan event.
But while its products may be mundane consumer staples in the West, Unilever has excellent growth prospects abroad. Unilever gets nearly 60% of its revenues from emerging markets, and while that has hurt the company over the past few years of emerging-market currency volatility, it ensures that it has a bright future as living standards continue to rise.
Unilever has one of the strangest share structures of any company on the planet. It’s listed in both London and Amsterdam as two separate companies, Unilever PLC and Unilever NV, respectively, and both trade in the U.S. as ADRs under the tickers UL and UN. Back in the 1930s, management found it easier and cheaper to do a “business merger” rather than a “legal merger” between the British and Dutch companies that today make up the Unilever Group.
Don’t be distracted by any of this. For all intents and purposes, UL and UN are the same. The only effective difference is that UN is subject to 15% withholding taxes on dividends in the Netherlands, whereas UL is not. This matters, as the dividend is an important part of Unilever’s returns. The company has raised its dividend every year for over 25 years and currently yields 3.13%.
Everyones favourite technology company. Apple would not have been touted as a worry free retirement stock 10 years ago because its core product markets were too new to warrant consideration for conservative investors.
Apple spent most of the 2000s and 2010s as an explosive growth stock, and investors who got in early made a killing. But as the products apple sells have matured (smartphone and tablets) the company itself has matured as well.
Today, Apple is a profitable company with an unrivalled hoard of cash, no net debt, and a strong recent history of dividend hikes and share repurchases. Apple has a cash hoard currently in excess of $178 billion. This is all ‘off-shore” so will be have to be taxed in the US first before investors get any money.
If we assume that all of Apple’s cash was taxed at the full 35% US corporate tax rate, Apple would still have $116 billion in cash. That’s enough to pay off its existing long-term debts three times over. It would also be enough to continue paying dividends at the current rate for the next 10 years.
In the smartphone market, Apple has major competition from Samsung (SSNLF) and other makers of Google (GOOG) Android devices. Over time, Apple may have trouble maintaining its fat profit margins in the face of such worthy competition. But given that Apple trades at a significant discount (P/E 15) to the broader S&P 500 (P/E 21), a fair amount of margin compression appears to be baked into current prices.
Apple currently offers a dividend yield of 1.61% and this is only set to grow in the years to come.
Realty Income (O)
This is a stock not many UK readers have heard about. And I don’t blame you. Realty Income is probably the most ‘boring’ stock on Wall Street.
Realty Income has what is perhaps the simplest business model of any stock trading today. It buys high-quality properties in high-traffic areas and rents them to high-quality tenants; its “typical” property is a pharmacy run by CVS Caremark (CVS) or Walgreens(WAG) .
Realty Income provides dividends on a monthly basis which is an added bonus. The stock is currently yielding a very healthy 5%. By buying Realty Income, you can collect your monthly dividend cheques and sleep well at night.
*Note: Before buying and stock always do your own research. The markets change everyday, make sure the price you pay for your stock is reasonable.