Even in your 70s, you may very well have two decades or more ahead of you. That type of potential long-term future means you should really consider owning stocks, even if you're already retired. But not every stock is fit for the portfolio of an investor in their 70s, as it's much more difficult to recover from a severe downturn if you're relying on your portfolio to cover your costs.
The ideal stocks for a 70-something investor are ones that:
Have solid balance sheets, improving their chances of withstanding typical economic downturns.
Are reasonably valued, helping reduce the downside risk from a market correction.
Pay well-covered dividends, providing investors with direct cash rewards for their financial risks.
Look capable of growing at least in line with inflation over time, giving investors a chance to protect their buying power.
These three stocks fit the bill, making them worthy of your consideration.
Senior man looknig at a computer screen with growth charts
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A healthcare titan with a history of over 130 years of helping others
Johnson & Johnson (NYSE: JNJ) can trace its history back to 1886. A leader in medical devices ranging from bandages to leading-edge robotic surgery, Johnson & Johnson has both a proven track record of success and a path of innovation that should serve it well in the future.
As befitting of an industry titan, Johnson & Johnson has a solid balance sheet with a debt to equity ratio below 0.5 and around $16 billion in cash. That's an incredible war chest to protect it against an economic downturn or to provide capital for acquisitions or research and development. Even with that strong financial foundation, its shares are available at a reasonable price of around 17 times the company's expected future earnings.
With those earnings expected to grow by around 7.8% annualized over the next five years, Johnson & Johnson looks capable of continuing to reward its shareholders. Those shareholders currently receive $0.84 per share per quarter in dividends, for a yield of about 2.3%. That dividend represents less than 60% of the company's earnings, adding to its flexibility and providing room for its dividend to continue to grow as its earnings do over time.
If it squawks like a duck
A white duck with an orange bill, similar to the Aflac spokesduck
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Supplemental insurance titan Aflac (NYSE: AFL) may be best known for its famous spokesduck, but the company's quirky advertising certainly doesn't detract from its dominant position in its industry. Aflac is so powerful in Japan's cancer insurance market, for instance, that even the Japanese post office markets its policies. It also happens to be the largest supplemental insurance provider in the United States.
As befitting an insurance company where catastrophic events could cause large, unexpected payments, Aflac has a strong balance sheet, with a debt to equity ratio below 0.3 and nearly $5 billion in cash. Investors can buy that solid foundation for around 12 times the company's expected forward earnings, providing a reasonable value for the money.
Aflac's shares are available at that reasonable price despite the fact that it is expected to be able to grow its earnings at a healthy 13.5% annualized clip over the next five years. That gives investors reason to believe that Aflac will be able to continue its trend of increasing its dividend annually. That dividend yields 2%, sits at $0.45 per share per quarter, and is 25% of the company's earnings. That reasonable payout and expected earnings growth strongly suggest Aflac can continue to raise its dividend.
A regional utility with an incredibly strong distribution business
Pipelines in the setting sun
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Unless you live in its Pennsylvania or small sliver of the Maryland service area, you may never have heard of natural gas and electric utility company UGI (NYSE: UGI). Chances are better, though, that you know the AmeriGas (NYSE: APU) propane distribution business that operates nationwide. UGI owns the general partner of AmeriGas and thus directly benefits from its operations. UGI's propane distribution business also extends into Europe, giving it international reach in the business of moving energy around.
UGI's balance sheet isn't burdened by too heavy a debt load. It does carry a debt to equity ratio of around 1.2, which is reasonable for a utility. It also has a current ratio of around 1.0, indicating that it has sufficient cash and short-term assets on hand to cover its financial obligations coming due in the near term. That solid balance sheet supports a business available on the market at a reasonable 18 times its expected forward earnings, a decent value for a strong business in a critical industry.
Those earnings are expected to grow by around 6.2% annualized over the next five years, a decent clip that should outpace inflation -- but isn't exactly rapid growth. Those earnings support a dividend of $0.25 per share per quarter, for a yield around 2.1%. At a 40% payout ratio, UGI has room to continue increasing its dividend over time as its earnings grow.
Invest for your long-term future
In your 70s, you may very well have decades ahead of you. While you shouldn't rely on stocks for money you need in the next few years, they can have a place in the longer-term part of your portfolio. By owning solid companies with decent prospects, reasonable valuations, shareholder-friendly dividend policies, and solid balance sheets, you can get stock-like returns with less worry than if you own high-flying businesses. That balance can serve you well as you plan your financial future and retirement.
Chuck Saletta owns shares of Aflac and UGI. The Motley Fool owns shares of and recommends Johnson & Johnson. The Motley Fool recommends Aflac and UGI. The Motley Fool has a disclosure policy.
