These are the 6 best retirement stocks for investors over 50. They reflect stable income, covered by the underlying company’s earnings. This includes simple valuation metrics like low P/E ratios, high dividend yields, and good forecast earnings growth.
Retirees have limited incomes from pensions and Social Security. Their investment portfolio no longer needs to maximize growth but simply provide income and essential stability.
Therefore, the best way to structure the best retirement stocks in this kind of portfolio is to find dividend stocks that will continue to grow their dividends. The underlying company’s earnings also cover the dividend payments.
Lastly, the company should show potential earnings growth, and plenty of free cash flow (FCF) so that the dividends are easily paid. That could also leave room for share buybacks which are also beneficial for the best retirement stocks.
Let’s dive in and look at these stocks.
|BAC||Bank of America||$31.83|
|FNF||Fidelity National Financial||$38.26|
|FSK||FS KKR Capital Corp||$20.74|
Cigna Corp (CI)
In 2021 Cigna Corp (NYSE:CI) started paying a substantial dividend after years of minimal payments. Cigna then raised the dividend from pennies to $4 in 2021. Then in 2022, it hiked the dividend-per-share by 12% to $4.48. Now CI stock yields 1.60% and it is likely to keep raising the dividend annually with its huge free cash flow.
In addition, Cigna has sold off its international operations. It should produce $8.25 billion in FCF this year alone. The company’s forecast earnings-per-share of $22.74 are well more than enough to cover the $4 DPS.
Moreover, Cigna is now buying back large amounts of its stock. It spent $1.8 billion year-to-date through May 5 on buybacks. That puts it on a run rate of over $5.4 billion annually in share repurchases.
That could mean it will raise its DPS annually. That will be a result of FCF growth and the reduction in the share count from buybacks. As a result, this makes it one of the best retirement stocks.
JPMorgan Chase (JPM)
JPMorgan Chase (NYSE:JPM) is a cheap bank stock with an outsized yield. Analysts are expecting $2.93 per share in GAAP and non-GAAP EPS. This is higher than the prior quarter’s EPS of $2.63. Its forward price-to-earnings ratio is low at 9.9x this year’s forward earnings forecast of $11.33 per share.
Moreover, the bank pays a $4 dividend quarterly. This gives JPM stock a run rate dividend yield of 3.50% at the closing price of $114.36 on July 8. For the past 5 years, the bank’s average yield has been 2.56% each year. This implies that the stock could rise 36.6% to $156.25, its target price if the stock were to have a 2.56% yield with a $4 dividend.
Last quarter the bank spent $1.7 billion on share buybacks, putting it on a $6.8 billion run rate for the year. This is based on a new $30 billion share repurchase program put together in May 2022. That could take several years.
This works out to 9% of its stock market value. If Q2 shows the company is still on a run rate to do $7 billion in buybacks this year, that could help push the JPM stock higher. It also makes this stock one of the best retirement stocks.
Bank of America (BAC)
Bank of America (NYSE:BAC) is due to announce another dividend increase sometime this month. This is because the bank has paid out four quarters at 21 cents per share. It usually raises the dividend after four quarters at the same level.
Right now, BAC has a dividend yield of 2.64% with its 84 cents annual dividend. If the Bank hikes it to 95 cents, the yield will be 3%. This could become a major catalyst for the stock in the short term.
Bank of America is now spending heavily on share buybacks. That includes $2.65 billion in Q1 alone, which was about one-third of its normalized cash flow. This is important since the bank can then raise its DPS. It also makes sense as the bank’s valuation is now very inexpensive.
For example, analysts forecast earnings will rise 17% next year, putting BAC stock on a forward P/E multiple of just 9.7x this year and 8.3x for next year.
But this is below its 5-year average multiple of 12.2x, according to Morningstar. As a result, BAC stock could rise one-third to one-half from today’s price. This makes it one of the best retirement stocks.
AT&T (NYSE:T) now pays a DPS of $1.11 after the recent spinoff of its Warner Media division. That gives it a dividend yield of 5.34% as of July 8.
That division was merged with Discovery Inc and spun off to AT&T shareholders (71%) and Discovery shareholders (29%). It formed Warner Brothers Discovery (NASDAQ:WBD) in early April.
AT&T received $47 billion in cash from WBD as part of the transaction. That money was to be used by AT&T to pay down its debt. That theoretically lowered the company’s interest costs during the quarter.
If that is the case, the company could earn more. Analysts now project 62 cents in non-GAAP EPS for the quarter and an EPS of $2.56 this year. This puts T stock on a forward P/E of just 8.2x.
Given its low valuation, and high yield, AT&T stock is one of the best retirement stocks for investors over 50.
Fidelity National Financial (FNF)
Fidelity National Financial (NYSE:FNF) is a profitable title, escrow and trust company. FNF stock is off 27.8% YTD as of July 8. At $37.12 with its $1.76 dividend per share (DPS), the stock has a dividend yield of 4.74%.
Maybe this is because Fidelity National is forecast to post slightly lower revenue in 2023. However, EPS are forecast to rise 2.7% from $6.02 per share to $6.19 in 2023, according to Seeking Alpha.
This puts FNF stock on a very low price-to-earnings (P/E) multiple of just 6.2 times 2022 earnings.
Moreover, FNF’s average yield over the past four years has been 3.36%. This implies its target price is 41.1% higher at $52.38 per share (i.e., $1.76/0.0336).
FS KKR Capital Corp (FSK)
FS KKR Capital Corp (NYSE:FSK) is a business development company that buys middle-market company loans. FSK stock’s quarterly dividend announcements bounce around depending on every quarter’s profits.
For example, last quarter FSK paid a 68-cent dividend, up from 63 cents in the quarter before that and 62 cents earlier. So, at its price of $20.85 on July 8, the stock has a dividend yield of 12.95%.
Moreover, FSK stock trades well below its quarterly NAV price. Last quarter its NAV was $27.33, up from $27.17 at the end of Dec. 31. 2021. At $20.85, that puts it at just 76.3% of its NAV.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.