When considering stocks for retirement, there are two clear goals: security and income. Conservative, even defensive, strategies are needed to protect principal. And dividend stocks are preferred, particularly with the 10-year Treasury yielding just 2.2%.
The problem, particularly in a low interest-rate environment, is that it's tough to find that combination. Higher-yielding stocks offer more income, but almost always at higher risk.
Many older blue-chip stocks have growth questions or they may be facing disruption in their industries, as I pointed out in our review of 10 century-old stocks last month. Entire sectors like retail and energy are high-risk at best and uninvestable at worst.
And, of course, we're now in year nine of a mostly uninterrupted bull market, with market indices at or near all-time highs and valuations looking potentially stretched. The classic investment advice to simply buy and hold blue-chip stocks looks shakier than ever in this environment.
But those stocks still are out there - even if they might be harder to find than they've been in the past. Here are the seven best stocks for your golden years.
Best Stocks for Retirement: United Parcel Service (UPS)
United Parcel Service, Inc. (NYSE: UPS ) is a rare combination.
It's obviously one of the two leaders in its industry, along with rival FedEx Corporation (NYSE: FDX ). It has a fantastic "moat;" it would take literally billions of dollars and likely decades to replicate the business.
And yet UPS actually is benefiting from disruption, this time in the retail space. The rise of e-commerce titans like Amazon.com, Inc. (NASDAQ: AMZN ) and eBay Inc (NASDAQ: EBAY ) has been a boon for UPS' shipping and logistics business.
There have been concerns that Amazon may wind up a competitor, through its own air freight business. But Amazon still represents a small portion of UPS' total revenue - less than 10%, with reports estimating a 5% figure. Furthermore, with e-commerce growing high-single-digits annually, there will be more than enough to go around. And that growth will only continue as e-commerce further penetrates international markets, which drove over 20% of UPS revenue in 2016.
There's a long-term bull case for UPS and there's little reason to see any substantial near-term disruption. But UPS stock trades right at 20x the midpoint of 2017 adjusted earnings-per-share guidance, a reasonable multiple. Add to that a 2.8% dividend yield, and UPS is a safe, strong, long-term play.
Best Stocks for Retirement: Emerson Electric (EMR)
Emerson Electric Co. (NYSE: EMR ) is a classic example of paying for quality. EMR isn't particularly cheap, trading at 23.5x the midpoint of FY17 (ending September) EPS guidance, excluding the impact of a recent dilutive acquisition.
But shares of the diversified manufacturer of valves, thermostats, fluid power and other products rarely are cheap - and for good reason. Emerson has increased its dividend for an impressive 60 consecutive years, with the 61st raise likely coming before the end of the year. Revenue and earnings continue to grow, due to both organic growth and acquisitions. And the company is a leader in multiple end markets across its three reporting segments.
EMR stock probably won't be a high flyer … in fact, shares still trade below all-time highs reached in late 2013. But from a long-term standpoint, EMR has been a winner, returning almost 10% a year (including dividends) over the last quarter century. With growth likely to continue, those kinds of returns should as well.
Best Stocks for Retirement: McCormick (MKC)
Valuations in the food space look potentially stretched, with investors perhaps chasing "safe" stocks and trying to get yield not available in government bonds.
Yet with the Amazon acquisition of Whole Foods Market potentially pressuring suppliers, overall deflation in the industry, and private-label competition rising every year, those stocks may not be as safe as they look.
At first glance, McCormick & Company, Incorporated (NYSE: MKC ) looks like it could be one of those risky plays. MKC shares certainly are not cheap, trading at 24x fiscal 2017 (ending November) analyst EPS estimates and ~16x EBITDA. And growth hasn't been particularly torrid, with the company growing sales in the 3% range outside of acquisitions.
But McCormick looks better-positioned in the space than most.
Younger customers are buying more spices and seasonings, as opposed to the secular declines facing better-known consumer plays like The Coca-Cola Co (NYSE: KO ) and Hershey Co (NYSE: HSY ), each of which have similar valuations. The recent acquisition of French's mustard and Frank's hot sauce from Reckitt Benckiser Group Plc-ADR (OTCMKTS: RBGLY ) added debt to the balance sheet, and potentially risk to the stock. But it also added growth potential, and this is exactly the kind of business that should lever up with interest rates so low.
MKC only yields 1.9%, a potential sticking point for income investors. But that dividend is growing nicely, and it should continue to do so. So should McCormick itself.
Best Stocks for Retirement: Bank of America (BAC)
Bank of America Corp (NYSE: BAC ) might seem an odd choice for this list. After all, we're still less than a decade out from the financial crisis, when BofA acquisitions Merrill Lynch and Countrywide nearly brought the bank down and wound up costing tens of billions of dollars in legal settlements.
But while the economic wisdom of Dodd-Frank and other post-crisis regulations can be debated, there's little doubt that they have de-risked the banking industry as a whole relative to pre-crisis levels. BofA's own efforts have improved its credit metrics substantially, while earnings and revenue are growing nicely.
There's a reason that Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A , NYSE: BRK.B ) is now the largest owner of BAC stock . And remember that the Oracle of Omaha's "favorite holding period is forever." Meanwhile, BAC stock still trades just below book value and at under 14x 2017 EPS estimates, while offering a 2% dividend yield to boot.
Should interest rates finally rise, BofA will be a major beneficiary. And with Wells Fargo & Co (NYSE: WFC ) awash in scandal, and JPMorgan Chase & Co. (NYSE: JPM ) and Goldman Sachs Group Inc (NYSE: GS ) more dependent on lumpy investment banking revenue, BAC looks like the best large-cap stock for when those rate hikes finally arrive.
Best Stocks for Retirement: Intel Corporation (INTC)
As the semiconductor sector as a whole moves toward its highest levels since the dot-com bubble, Intel Corporation (NASDAQ: INTC ) seems almost forgotten. And there are some reasons for concern.
Competition is increasing. Advanced Micro Devices, Inc. (NASDAQ: AMD ) has become a legitimate rival in desktop and laptop computers with its new Ryzen line . With PC sales as a whole relatively flat, AMD's share gains could lead to revenue pressure for Intel.
Growth elsewhere may be difficult as well. Nvidia Corporation (NASDAQ: NVDA ) is challenging Intel's dominance in data center chips. And Intel will face Nvidia, and a host of other hopefuls, in the automotive space after its acquisition of Mobileye NV (OTCMKTS: MBBYF ).
The worst-case scenario for Intel is an outcome similar to that of International Business Machines Corp. (NYSE: IBM ), which is seeing revenue - and profit - decline as it loses out to younger, more nimble rivals. But Intel isn't IBM yet, nor is it close to becoming it. It's coming off a second quarter where it posted record sales and raised full-year guidance.
Yet INTC is trading at 12.3x 2017 EPS guidance, a multiple that suggests its growth is coming to an end. And Mobileye hasn't yet contributed to its results, with that deal closing last month. Valuation here seems too conservative, and it seems to imply that Intel has peaked. With so much optimism toward the space as a whole, that in turn suggests that Intel - one of the greatest tech companies of all time - simply won't be able to compete.
That's too bearish of an outlook. Even if INTC turns out to be "dead money," or close, a 3% dividend yield will provide solid income. Any additional growth, meanwhile, will only add to the stock's returns.
Best Stocks for Retirement: Duke Energy (DUK)
Utilities long have been considered among the best safe plays for income investors. Utilities generally enjoy a monopoly, or something close, along with annual price hikes approved by regulators. Power consumption usually dips modestly, if at all, in a recession.
Utility stocks generally don't appreciate all that much in price, but over time they can provide above-market returns with lower risk - a powerful combination (no pun intended).
There are a number of quality utility stocks at the moment, but one of the best stocks for your golden years is Duke Energy Corp (NYSE: DUK ). DUK shares dipped briefly last week amid fears about the impact of Hurricane Irma on its operations in south Florida. But the company appears to have dodged major damage, with power now returned to 99% of customers (as of Sunday).
Meanwhile, Duke has exposure to growing population centers in Florida and the Carolinas. The end of a planned nuclear plant in South Carolina takes a major risk off the table, given how troublesome construction of those plants has been for fellow utilities like Southern Co (NYSE: SO ). This should be a low-risk stock with reasonable growth. Yet at ~18x forward EPS estimates and with a dividend yield just above 4%, DUK looks reasonably priced.
Best Stocks for Retirement: Medtronic (MDT)
Shares of Medtronic plc. Ordinary Shares (NYSE: MDT ) have pulled back about 9% from all-time highs reached in late June - that is an opportunity to nab one of the best stocks to buy for your golden years.
In this day and age, with so much uncertainty around healthcare spending and costs, the space as a whole has its own degree of political and regulatory risk. But Medtronic's portfolio is so wide-ranging, and so critical to such a range of specialties, as to ensure that it will succeed in almost any environment.
Meanwhile, MDT stock isn't particularly expensive, trading at a bit over 16x FY18 EPS guidance. That's despite the company projecting 9-10% growth this year, a solid number. Medtronic's dividend, meanwhile, yields 2.24% - above the 10-year Treasury after a 7% hike this summer.
Again, healthcare stocks used to be considered defensive; that's not necessarily the case anymore, particularly for companies with a larger share of profits derived from the U.S. But MDT should thrive regardless, and the recent pullback leaves the stock attractively priced for the near- and long-term.
As of this writing, Vince Martin was long MKC stock.