5 Potential Retirement Stocks for Income Investors

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Passive investing in equities for retirement requires prudent, conservative allocation of resources into those equity securities that assure stable or consistently rising income streams with little volatility of price returns over time; discover one particular market-beating strategy here. Companies that have earnings power and consistency through all business cycles are obviously preferable, but boring and defensive is what generally has been the norm among conservative retirement investments in stocks.

The details

Focusing on stocks that can deliver a combination of dependable dividend income and capital appreciation over time, here is a list of five potential retirement stocks. These stocks were selected based on the following characteristics:

  • Dividend yields of at least 3%, above the current 10-Year Treasury bond yield of 2.16%
  • Long-term historical dividend growth above the rate of inflation
  • Low variability of returns
  • Betas below that of the broader market
  • Capacity to sustain earnings and dividends through business cycles
  • Diversification across several industries

Johnson & Johnson

Johnson & Johnson (NYSE: JNJ), a pharmaceutical giant boasting 51 years of consistent dividend growth, is as dependable for dividend income as it gets. The company has been in operation since 1886, and has a record of 29 years of consecutive increases in adjusted EPS. It is poised for additional years of EPS expansion, driven by its diversified product mix (comprising of drugs, medical devices, and consumer products) and a robust development pipeline. In addition to its earnings consistency, Johnson & Johnson’s low-volatility of returns, beta of only 0.48, dividend yield of 3.0%, and consistent dividend growth—averaging 7.9% over the past five years—make it a strong candidate for long-term retirement portfolios. Its balance sheet is rock solid, and features low debt relative to equity. The company is a free cash flow powerhouse, as it converts 114% of its net income into free cash flow.

Johnson & Johnson has several catalysts for continued growth in the future, which should support its earnings and total returns. These catalysts include aging demographics, rising incidence of chronic diseases, and growing incomes in emerging markets. With the pharmaceutical market expected to grow at a CAGR of 4.5% through 2017, according to IMS Health, Johnson & Johnson is planning to submit 10 new products filings by 2017. Drug introduced over the past few years, including Zytiga for prostate cancer and Invokana for diabetes, have already mitigated revenue losses from Johnson & Johnson’s patent cliff. These and other products introduced since 2009 are expected to account for nearly half the overall sales by 2017. Contributions to growth will also come from the medical devices and consumer goods markets. The global medical devices market is expected to expand at a CAGR of 6.1% for the next five years, according to Lucintel, a global market research firm, while demand for consumer goods will receive a major boost from emerging markets.


Scana (NYSE: SCG), an electric utility company with operations in South Carolina, North Carolina, and Georgia, is another candidate for retirement portfolios. The company has been in operation for 160 years. Its consistent earnings performance has enabled it to increase dividends for 12 consecutive years now. The company operates in a favorable regulatory environment, whereby regulated earnings from electricity and natural gas utilities provide stability to cash flows and, thus, to dividends. Utilities are generally the least economically sensitive sectors, characterized by low operational risk, which is the case with Scana. Moreover, as a utility stock, Scana has low variability of returns relative to its own average return and the market’s returns as measured by the stock’s beta that is only half the metric for the overall market.

Scana’s margins have been improving recently, as customer growth continues and base rate increases are enforced. The utility company is forecast to see faster EPS growth over the next five years compared to the previous five, and its projected earnings expansion will be more robust than that forecast for many of its peers. The stock is also better positioned than peers based on valuation, as it is trading below both trailing and forward multiples of its industry.

Community Bank System

Community Bank System (NYSE: CBU), a small-cap regional bank, is a committed dividend grower, with two decades of consistent annual dividend increases. Its dividend stability is evident from the fact that while many other banks suffered deep losses and slashed dividends during the 2008 financial crisis, this regional bank continued its long streak of dividend increases. The stock has a beta of 0.6. It sports a dividend yield of 3.7% on a payout ratio of 54% of its current-year EPS estimate.

The bank was one of last year’s best operational performers among U.S. regional banks, as ranked by SNL Financial. It is characterized by a disciplined approach to profitability growth, strong asset quality, and dominant market positions in its focus, mainly non-urban markets. What generally has worked to the benefit of the bank’s financial performance is its diversified financial services product offering, which includes wealth management and employee benefit plans administration and consulting.

These have given the bank a significant non-interest income exposure, which has helped buttress overall earnings in the environment of falling interest-rates that have squeezed net interest margins, hurting interest-based earnings. With loan growth of about 11.8% year-over-year in the previous quarter, Community Bank System’s net income and diluted EPS have hit record levels for a first quarter. Acceleration in economic growth, including more robust employment gains, and interest rate increases bode well for Community Bank System’s growth in the future. Having completed six branch or bank acquisitions over the past six years as well as a few acquisitions in benefits administration and consulting, Community Bank System remains committed to a combination of organic and acquisition-based growth.


Sysco (NYSE: SYY), the largest U.S. food wholesaler and distributor of food service products, is also a dividend growth machine with 44 consecutive years of dividend increases. Despite such a long streak of consecutive annual dividend increases, Sysco has reached a payout ratio of 61%, which is a testament to the consistency and size of the company’s earnings expansion over the past four decades. In fact, the company has achieved sales growth in nearly every year of the past four decades. Sysco currently yields 3.3% and, with a beta of 0.69, it produces price returns that are less volatile than those of the overall market.

Sysco’s demand patterns are closely tied to the restaurant demand, which is expected to gain traction with an accelerating job creation and economic growth. In fact, the National Restaurant Association’s Restaurant Performance Index expectations have climbed to an 11-month high, suggesting better days are likely ahead. Accelerated economic growth is expected to multiply the company’s average EPS CAGR forecast for the next five years relative to the average CAGR achieved over the past half decade. Still, with a moderate growth in its industry, Sysco expects to grow sales through market expansion and market share gains.

It has traditionally expanded market share by half a percentage point per year. In addition to organic growth, acquisitions will help boost growth as well. With these initiatives, improved margins due to subsiding food inflation, and cost cutting through lower product costs and reduced cost structure worth a combined $550 million to $650 million per year through fiscal year 2015, the company looks to be on track to boosting its bottom line by as much as 45% by fiscal year 2015.


Chevron (NYSE: CVX), the integrated oil and natural gas behemoth, provides a major cash yield to investors as this company not only pays an attractive dividend yield of 3.3%, but also implements consistently high share repurchases averaging $5 billion annually. The company has raised dividends for 25 consecutive years, yet it still boasts a low payout ratio of 32%, which testifies to its robust earnings expansion and suggests that a continued EPS growth will assure further dividend hikes in the future. This investment looks prudent, as the company features rock-solid balance sheet, which is low in debt and rich in cash, providing Chevron with ample liquidity to fund capex and withstand commodity price shocks.

Chevron, focused on cost efficiency, stands out among its peers by achieving excellent operational execution. It is a leader in upstream profitability per barrel and the second-best positioned in terms of downstream profitability per barrel. Among peers, Chevron also has achieved the highest cumulative EPS and cash flow per share increases over the past five years. With industry-leading volume expansion—forecasting 25% output growth through 2017—and sizable cash flow growth potential, Chevron looks like one of the best dividend growth plays in its industry. In fact, in its industry, it has had the highest rate of dividend growth since 2004. As an equity investment, the stock looks cheap on a price-to-book basis relative to its larger rival, Exxon Mobil.

Final thoughts

All readers—and investors who consider themselves “traders” too—need to be aware of how to plan for retirement. Obviously, this involves saving a significant portion of one’s income for a proverbial rainy day, but in addition, this strategy can be used in the equity markets as well. The aforementioned companies—Johnson & Johnson, Scana, Community Bank System, Sysco and Chevron—all meet the common retiree’s investment criteria, as described above.

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This article is written by Serkan Unal and edited by Jake Mann. Insider Monkey's Editor-in-Chief is Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool recommends Chevron, Johnson & Johnson, and Sysco. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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