With the market getting knocked around more this year,
investors are understandably on edge.
A recent American Association of Individual Investors (AAII)
survey found the highest level of investor pessimism in nearly a
year, with 38% of respondents saying they were bearish and 31%
being bullish. The last time bears outnumbered bulls by such a
margin was in late August 2013, according to the AAII.
But why shouldn't investors be in a sour mood, with global
tensions risings and widespread calls for a market correction?
These are just the sorts of things that can take the wind out of
the market's sails.
Nobody needs that, especially retirees. With the market and
economy so iffy, how are they supposed to generate the equity
returns necessary to sustain them during a phase of their lives
that could last many years, even decades?
Of course, they'll need reliable dividend-paying stocks, but
now more than ever it's crucial not to pay too much for such
investments. Because if there is a big correction, the loss of
principle on overpriced shares will be all that much greater --
and retirees certainly don't need that, either.
What they do need are stocks with generous, reliable payouts
and attractive valuations that provide extra downside cushion in
a big selloff. Here are three such stocks every retiree should
consider for the equity portion their portfolio.
Recent price: $52.70
Per-share dividend: $1.91
Forward P/E: 13.5
France-based Sanofi is the world's fifth-largest drug company
by sales, which have averaged $44.8 billion a year for the past
five years. The firm has a wide portfolio of medicines -- such as
Docetaxel for cancer, Allegra for allergies and many vaccines.
SNY's biggest product is its branded insulin Lantus with sales
approaching $8 billion a year. SNY also has an animal health
segment with $2.7 billion in annual sales.
The firm's dividend has been trending upward for a decade and
is now more than three times 2004's payout of $0.58 a share. For
shareholders, that's a raise of about 13% a year, and SNY is
quite capable of delivering comparable dividend growth in the
With 2.62 billion shares outstanding, the firm's annual payout
currently totals $5 billion. Yet it has current assets of $32
billion, including $11.3 billion in cash. Free cash flow has
averaged $9.5 billion a year for five years now, and net income
typically well exceeds $5 billion annually. With Lantus as a top
insulin brand, a strong pipeline (which includes the cholesterol
drug alirocumab), and projected earnings per share (
) growth of 9% a year, SNY should have no problem generating more
than enough liquidity to maintain attractive and rising
Although the stock is trading for 27 times trailing earnings,
it's very attractively priced on a forward basis because of
consensus estimates for EPS of $3.88 next year.
Lockheed Martin (NYSE:
Recent price: $169.29
Per-share dividend: $5.32
Forward P/E: 13.7
A dividend of more than $5 a share is pretty uncommon, but
Lockheed Martin can comfortably afford this. Its present payout
ratio is only 55%, leaving ample room for more raises in coming
years (the firm has delivered increases every year for over a
Investors may need to temper their outlook for the rate of
growth, though, as LMT likely can't keep up the 21%-a-year pace
it logged from 2008 through 2013. With the U.S. government as by
far its largest customer, the firm will find it difficult to
escape the effects of the nearly $1 trillion in defense cuts
scheduled to occur during the coming nine years under the
Most worrisome would be big order cancellations for the
aeronautics segment's state-of-the-art F-35 fighter widely seen
as LMT's key revenue source at 16% of net sales. Government
budget cuts will also present major obstacles for the other four
business units -- missiles and fire control; mission systems and
training; information systems and global services; and space
However, LMT is moving to reduce its dependence on the U.S.
government by seeking more international business, a task Uncle
Sam is simplifying by easing restrictions on weapons sales to
foreign customers. One of LMT's latest foreign buyers is
Australia, which recently announced an order for 58 F-35s at a
cost of $11.6 billion.
Because of these and other diversification efforts, analysts
see LMT increasing EPS by 7.7% a year through 2019 -- only
slightly slower than the 8% growth rate of the past five years.
Assuming the same 55% payout ratio, this suggests LMT's dividend
could climb to $7.72 a share within five years.
Total SA (NYSE:
Recent price: $64.08
Per-share dividend: $3.35
Forward P/E: 10.1
Now is an especially good time for dividend seekers to invest
in this large, integrated French energy firm, which has annual
sales of $234.6 billion. That's because Total is scaling back a
costly phase of capital spending averaging about $30 billion a
year for the past few years.
The spending has been for a good purpose -- funding new oil
and gas projects to help drive future growth. One such project,
expanded development of Total's Laggan-Tormore deep-water assets
west of the U.K.'s Shetland Islands, could add more than 65
million barrels of oil equivalent (
) to proven reserves, management estimates. The firm also plans
to spend hundreds of millions more to continue its push into
South Africa, an area with vast shale gas reserves.
Still, with major capital spending reductions planned and new
projects set to bear fruit during the next few years, Total
should soon see cash flow spike substantially. For instance,
Morningstar analysts estimate operating cash flow will climb to
$31.5 billion in 2018 from $25 billion this year, a 26% increase.
This should help support a dividend growth rate in the
mid-single-digit range in coming years, these analysts say.
Risks to Consider:
Whereas LMT will be contending with enormous military
spending cuts, Total is vulnerable to falling energy prices.
Sanofi may soon see a reduction in revenues from its blockbuster
Lantus, which is scheduled to go off-patent next year.
Action to Take -->
Sanofi, Lockheed Martin and Total are three of the best dividend
opportunities available to retirees right now. They're all cheap
on a forward basis and they all yield more than 3%. What's more,
they're all capable of overcoming the obstacles I've described
and remaining the types of reliable, generous income payers