Tue Oct 07 2014
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Three Stocks For A Worry-Free Retirement

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After a terrible start to the quarter, stocks are showing signs of life again. Perhaps it was the unexpectedly strong showing of pro-market candidate Aecio Neves in the first round of Brazil’s presidential election, or last Friday’s stronger than expected jobs report, but investors seem to be getting over their third-quarter jitters and looking to a strong finish to the year.

But here’s the truth: If you in or near retirement, you have no business worrying over every squiggle the market takes. First and foremost, you need a portfolio that allows you to sleep well at night, one that will provide stable, if not necessarily spectacular, returns.

A good retirement stock should have the following characteristics. To start, 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. Secondly, the company should be financed responsibly. As we saw in 2008, otherwise stable business ran into severe distress when their access to the lending markets was cut off during the crisis. And finally, you want stocks with a long history of taking care of their shareholders, ideally through regular dividend hikes but also potentially via share buybacks.

So, with that said, let’s jump into three of my favorite stocks for a worry-free retirement.

Unilever PLC

I’ll start with what is possibly the most boring company in the Europe: consumer products giant Unilever PLC(UL).

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: Axe, Ben & Jerry’s, Bertolli, Dove, Lipton, St Ives, VO5, and Vaseline. If there was ever a set of products that was unlikely to fall to technological obsolescence or a black swan event, it would be Unilever’s.

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 3.9%. For this reason, I recommend UL over UN.

Realty Income

Next on the list is one of my very favorite long-term income holdings, triple-net retail REITRealty Income (O).

I’ve commented in the past that I own shares of Realty Income that I intend to hold forever and pass on to my kids someday. If they are smart, they’ll pass the shares on to their own children someday as well.

Why my enthusiasm for Realty Income?

Simplicity. 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 Walgreens(WAG) or CVS Caremark (CVS).

Realty Income has been in business for 45 years and has paid 530 monthly dividends since going public in 1994. Realty Income has also raised its dividend 77 times in that span.

I wrote last month that Realty Income is on sale again, and I would reiterate that point today. Realty Income, along with most income-focused stocks, took a pounding in the third quarter on fears that the Fed would be tightening sooner rather than later. But bond yields have sense eased, and Realty Income now yields and attractive 5.3%.

Buy Realty Income, collect the dividend, and sleep well at night.


My last retirement stock recommendation is Apple (AAPL). This is a stock I wouldn’t have recommended for a staid retirement portfolio a few years ago because, frankly, 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 fortune. But as the smartphone and tablet markets have matured, Apple as a company has matured as well. Today, Apple is a profitable company with an unrivaled hoard of cash, no net debt, and a strong recent history of dividend hikes and share repurchases. While Apple, as a tech and consumer electronics company, is less predictable than Unilever or Realty Income, at this stage I am comfortable including it in our list of retirement stocks.

Will the iPhone 6 outsell its Android rivals? Maybe, maybe not. I’m not too concerned about the performance of any single product iteration because Apple has managed to do for mobile devices what Microsoft (MSFT)did with PCs in the 1980s and 1990s: They’ve built a platform. And via their new partnership with IBM (IBM), Apple is elbowing its way into the longer-lasting, less-fickle world of corporate enterprise relationships.

Smartphones and tablets are no longer explosive growth businesses. In fact, in the developed world, they are close to the saturation point. But these are also products with relatively short life cycles; most users replace their phones every 1-2 years.

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 to the broader S&P 500, a fair amount of margin compression appears to be baked into current prices.

Buy Apple and collect its 1.9% dividend, which I expect to double in the next five years.

About the author:

Charles Lewis Sizemore, CFA is the Chief Investment Officer of Sizemore Capital Management. Please contact our offices today for a portfolio consultation.

Mr. Sizemore has been a repeat guest on Fox Business News, has been quoted in Barron’s Magazine and the Wall Street Journal, and has been published in many respected financial websites, including MarketWatch, TheStreet.com, InvestorPlace, MSN Money, Seeking Alpha, Stocks, Futures, and Options Magazine and The Daily Reckoning.

Visit Charles Sizemore’s Website

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