5 Stocks Retirees Should Consider in 2016
With commodities plunging, the U.S. dollar putting pressure on earnings, and debts throughout the world soaring, this doesn’t make for a comforting investment environment. In fact, if someone were to just pick a few popular names in anticipation of a rebound over the next year, they could take a significant hit. You will find bullish calls with ease, but the market has already sent the message over the past several months. The trend is down, which relates to global deflation and central banks not having the same impact as they did years ago. Fortunately there are still opportunities, even if you want to go long, but they’re not easy to find and you can’t approach these stocks in a traditional manner. Here are five resilient stocks for retirees to consider.
McCormick & Company, Inc. (MKC) manufactures, markets and distributes spices, seasonings and condiments. These are products that will be purchased in any economic environment. They’re not exactly going to break the bank and people simply like their food to taste good. MKC wasn’t overly resilient during the financial crisis, but it still held up better than most stocks throughout the broader markets. More recently, it has appreciated 15.18% over the past year and only slid 1.98% over the past three months – both performances beat the S&P 500 with ease. MKC currently offers a dividend yield of 2.11%. With strong cash flow and a healthy balance sheet the dividend should be safe, especially since McCormick & Company has raised its dividend at an average annual rate of 9.2% over the past five years. (For more, see: Dividend Income From Your Dinner Table.)
J. M. Smucker
J. M. Smucker Co. (SJM) operates in four segments: U.S. Retail Coffee, U.S. Retail Consumer Foods, U.S. Retail Pet Foods; and International, Foodservice and Natural Foods. That covers an addictive product in caffeine, food in general, household pets that consumers will never stop spending on regardless of economic conditions and natural foods. SJM has appreciated 17.18% over the past year, including a 7.58% gain over the past three months. It also currently yields 2.18%. Cash flow and the balance sheet are both impressive – two big reasons SJM makes this list. SJM took a 20% hit at the height of the financial crisis, but that was much better than the majority of stocks found throughout the broader market.
Utility companies are historically resilient and Southern Company (SO) is no exception. This electric utility company only fell approximately 10% during the financial crisis. On the other hand, SO has slid 8.80% over the past year. The good news is that it has significantly outperformed the S&P 500 over the past three months, having gained 5.52%. And it currently yields 5.52%. Once again, strong cash flow and a healthy balance sheet are positives. Southern Company is expected to merge with AGL Resources Inc. (GAS) in the second half of the year, which will increase its customer base, is expected to lead to earnings per share (EPS) growth of 4-5%, and has the potential to lead to an increased dividend. Southern Company has raised its dividend for 14 consecutive years. (For more, see: Southern Makes a $ 12 Billion Acquisition.)
Believe it or not, Aqua America Inc. (WTR) actually appreciated during the financial crisis. It closed at $ 14.63 on July 31, 2008, right before the market crashed. At the bottom of that crash on March 1, 2009, it traded at $ 16.00. Stock appreciation in that environment was extremely difficult to find. This doesn’t mean WTR would appreciate in the next bear market, as it will be a more powerful bear market with a deflationary theme and no hope of central banks coming to the rescue with any real catalysts. WTR has appreciated 8% over the past year, including a 6.16% gain over the past three months. It currently yields 2.39%.
Aqua America will see some increased costs related to facility upgrades over the next few years, which could prove to be a headwind. But its consistent and strategic inorganic growth should lead to an increased customer base and long-term rewards for shareholders.
Reynolds American Inc. (RAI) held up relatively well during the last crisis and has appreciated 36.27% over the past year. It has slid 1.63% over the past three months, but this still beats the market, and it currently yields 3.11%. The most appealing aspect of RAI is that its products are recession-resistant. People who smoke are still going to smoke even if the economy sours, perhaps even more due to stress. It has been reported that lower gas prices are leading to increased tobacco sales at gas stations as consumers are using that extra money for their vice. More importantly, Reynolds American is a market-share leader in the e-cig space with VUSE e-cigs, which it sells under the Reynolds Vapor Company. (For more, read: As E-Cig Sales Growth Slows, Big Tobacco Gains.)
Reynolds American knows how to maximize its potential in mature markets while adding growth by positioning itself to be in-line with new consumer trends. This, in addition to a safe and relatively generous yield. Disclosure: I own the stock.
The Bottom Line
The five stocks listed above aren’t guaranteed winners, but they’re likely to be safer investments for retirees than what you will generally find throughout the broader market. In order to reduce risk, it’s highly recommended that you discuss a dollar-cost averaging strategy with your financial advisor. (For more, see: The Top 3 Retirement Income ETFs for 2016.)
Dan Moskowitz is currently long on RAI. He does not have any positions in MKC, SJM, SO or WTR.