15 great retirement stocks to buy at reasonable prices

  • By Charles Lewis Sizemore,
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It's hard to believe, but stocks are within spitting distance of new all-time highs. At time of writing, the S&P 500 (.SPX) is just 1% away from being positive on the year and 6% away from literally the highest point in the index's history. Many discounts in prospective retirement stocks have evaporated completely.

Yet the real economy still is in rough shape. Advance estimates showed first-quarter GDP slowing by 4.8%, and early estimates by the Atlanta Fed show Q2 GDP falling by an almost inconceivable 53.8%. These numbers should be taken with a grain of salt, as production will naturally bounce back as America comes out of lockdown. But it's going to be a while before things start to look normal again.

High prices at a time when the economy is in freefall might seem odd. It actually gets worse when you look at stock valuations. We won't even bother with the price-to-earnings (P/E) ratio or the forward P/E. With earnings per share so distorted by COVID-19 disruptions, any metric that uses an estimation of corporate profits for the next year will be all but useless, making stocks priced against nonexistent earnings look artificially expensive.

But even the cyclically adjusted price-to-earnings ratio (CAPE), based on average inflation-adjusted earnings over the past decade, tells a rather sobering story. At today's CAPE of 30, the S&P 500 is 78% higher than its long-term average and priced to lose about 1.5% annually over the next eight years, according to research site GuruFocus.

Yet as the old saying goes, the stock market is a market of stocks. While the major market averages are priced to disappoint, some bargains remain. And with the Federal Reserve continuing to pump liquidity into the system for the foreseeable future, the general direction will likely be higher.

Today, we're going to look at 15 retirement stocks to buy at still-reasonable prices, even in the post-COVID-19 market. Not all are once-in-a-lifetime buys, but investors can rest assured that they're buying good companies at decent prices – exactly the way you want to build a retirement portfolio.

Public Storage

Market value: $36.1 billion

Dividend yield: 3.9%

We'll start with one of the most durable and pandemic-proof retirement stocks in the real estate sector: Public Storage (PSA).

Public Storage is the world's largest owner and operator of self-storage facilities. The company, which is organized as a real estate investment trust (REIT), serves more than 1 million customers across nearly 2,500 facilities.

One of the nice aspects of the self-storage business is that it is largely countercyclical. Demand for storage units doesn't decline in a recession. If anything, it actually increases as people are forced to downsize or move in with family.

Ari Rastegar, founder of Rastegar Property Company, a vertically integrated real estate firm based in Austin, Texas, notes that "rising property prices have led to the trend of smaller apartments, particularly among young people. Your apartment might be shrinking, but you still need to put your personal belongings somewhere."

So while PSA stock did dip with the broader market, it didn't decline nearly so steeply. But investors still can buy shares at a roughly 10% discount from their 2020 highs.

Public Storage is a consistent dividend payer and sports an attractive yield of nearly 4%. Over the past 20 years, the stock has rarely offered a yield that generous. That payout is all the more attractive when you consider how pitifully low bond yields are today. The 10-year Treasury offers just 0.9%.


Market value: $210.8 billion

Dividend yield: 3.3%

The virus quarantines have, of course, wrecked the restaurant and entertainment industries. But there have also been some less obvious victims. Consider the case of soft drinks. Yes, people are eating at home more, and buying more groceries, including soft drinks. But they're eating at restaurants less, meaning they are ordering fewer drinks and, importantly, getting fewer refills.

This brings us to Coca-Cola (KO). The company is most famous for its namesake Coca-Cola soda, but the company also owns the Minute Made juice brand, Dasani bottled water, Powerade sports drinks, the recently acquired Costa Coffee chain and a host of other businesses.

Coca-Cola has spent most of the past five years hovering a little over $45 per share. The stock price rocketed higher in 2019, along with the rest of the stock market, shooting above $60. But the bear market knocked KO back down into its multiyear trading range, where it remains today.

You're not likely to get rich with Coca-Cola. It's a mature global beverages brand that depends on acquisitions for growth. But as a Dividend Aristocrat, it's definitely among the most reliable retirement stocks you can buy to get you through your golden years. And at today's prices, it yields an attractive 3.5%, which is on the higher side of its five-year average.


Market value: $183.8 billion

Dividend yield: 3.1%

Along the same lines, we have soft drink rival and fellow Aristocrat PepsiCo (PEP).

Pepsi has held up better than Coca-Cola in 2020 due in large part to its strong snacks business. Pepsi beverage products are less common in restaurants, making restaurant closures less damaging. Meanwhile, Americans stuck at home have been munching on their fair share of salty snacks, which have fatter profit margins.

Pepsi's Frito-Lay division includes popular brands such as Lay's, Doritos, Cheetos, Fritos, Tostitos and Funyuns, among others. Last quarter, North American sales of these products accounted for 29% of revenues but 62% of operating profit. North American Beverages made up 35% of revenues but just 15% of operating profit.

PepsiCo isn't a beverage company that also sells potato chips. It's a salty snacks company that happens to be named after a soda brand.

PEP stock isn't dirt cheap at current prices, but it's certainly not expensive. The current dividend yield of 3.1% is slightly above the company's average for the past 10 years. And while the quarantine-inspired gorging on potato chips won't last forever, it's safe to assume PepsiCo will still be benefitting retirement investors for decades to come.

CVS Health

Market value: $89.3 billion

Dividend yield: 2.9%

During the biggest global health scare in a century, you might think that a pharmacy chain would be making hay. Yet shares of CVS Health (CVS) are still down about 10% from their 52-week highs.

The picture gets worse as you look out even farther back. CVS shares have been in almost continuous decline since 2015 and have lost nearly half their value in that time. While it's never easy to explain exactly why a stock has outperformed, both CVS and rival Walgreens Boots Alliance (WBA) have both complained of lower reimbursement rates in recent years. Essentially, with Americans having to pay more out of pocket for prescription drugs, pharmacies have been eating some of the costs.

These pressures likely won't go away any time soon. But given that CVS trades at 2013 prices, it might be safe to assume that the worst is priced in. Apart from its prescription drugs business, CVS pharmacies also function as convenience stores and, in some cases, actual health clinics with nursing staff. As rising health costs force American to look for cheaper alternatives, CVS's convenient care clinics should continue to bring new patients in the door.

And while they're there, CVS hopes they linger for a bit and buy a few personal care items on their way out the door.

CVS yields roughly 3% right now, which is about where its payout was in early 2018. Before that, it had been two decades since the last time CVS offered yields that high.


Market value: $188.2 billion

Dividend yield: 5.1%

It has been a rough five-year stretch for energy stocks. The collapse of oil prices in 2014-16 was bad enough. After years of increased production from onshore fracking, the crude oil market was suddenly awash in in supply. Cutbacks by OPEC and other major producers helped to stabilize the oil price for a couple years, but the demand drop starting earlier this year due to China's coronavirus lockdowns sent the market right back into oversupply.

Then Saudi Arabia and Russia decided to launch an all-out price war in March, and the rest is history.

This brings us to energy supermajor Chevron (CVX). Chevron has a reputation for being a staid and reliable company – indeed, it's even a Dividend Aristocrat with 33 years of consecutive payout raises. But at its lowest point of the COVID-10 selloff, the stock lost more than 55% of its value. It has since recovered some of those losses, but Chevron remains roughly 20% below its 52-week highs, which weren't all that high to begin with. CVX had been trading in a narrow range since late 2016.

Energy stocks like Chevron will probably never again have the same economic clout they once did. But fossil fuels remain an essential part of the economy. And Chevron's dedication to its dividend, as well as CVX's current 5%-plus yield, puts this energy giant among some of the fairly priced retirement stocks you can buy.

Enterprise Products Partners LP

Market value: $45.8 billion

Distribution yield: 8.5%*

When it comes to retirement stocks, consistency is key. And few stocks boast a longer track record of consistency than natural gas pipeline operator Enterprise Products Partners LP (EPD).

Enterprise Products operates a sprawling network of 50,000 miles of pipelines transporting primarily natural gas and natural gas liquids. And while the price of energy has fluctuated wildly over the past several years, EPD's cash flows have been anything if not steady.

While distribution growth has been a little slow over the past few years, EPD generally raises its distribution by 4% to 6% per year. At current prices, the shares yield well more than 8% – far less than the 14%-plus it yielded earlier this year, but still well more than any other point in the past decade. For most of its history, EPD has yielded around 6%.

Master limited partnerships (MLPs) are focusing less on growth these days and more on balance sheet strength and debt reduction. That might mean that EPD grows its distributions at a slower rate over the coming years, but that's OK. At an 8.5% yield, you could get zero price appreciation and you'd still be earning a decent return.

Note that Enterprise Products, as an MLP, can create unrelated business taxable income (UBTI). That's not a problem for a taxable account, but it can create headaches for those investing via an IRA or Roth IRA. Thus, EPD is best held in a taxable account.

* Distributions are similar to dividends but are treated as tax-deferred returns of capital and require different paperwork come tax time.

Energy Transfer LP

Market value: $24.7 billion

Distribution yield: 13.3%

If you liked the Enterprise Products story, you should find rival Energy Transfer LP (ET) interesting as well. Energy Transfer is a North American midstream giant with approximately 90,000 miles of pipelines and a host of other energy infrastructure assets.

To say that Energy Transfer provides critical infrastructure would be an understatement. Around 30% of all American natural gas and crude oil runs through pipelines owned and operated by the company.

Energy Transfer has really seen its shares beaten up of late. When energy stocks rolled over in March, ET shares dropped from $12 to less than $4 before stabilizing recently above $8 per share. But it's important to note that, while the share price was volatile, the underlying business was not. Energy Transfer has continued to run its businesses without incident throughout this year's volatility, and at today's prices the shares yield a whopping 13.3%.

Energy Transfer has been an aggressive grower over the past decade, at times to the dismay of its investors. With ET shares as cheap as they are today, it's questionable whether growth projects still make sense when the company can divert its cash flow into share repurchases at ridiculously inexpensive prices. Management has gotten the message, and the company has slowed its expansion plans for this year, choosing instead to shore up its balance sheet and conserve cash.

It's also worth noting that Energy Transfer's insiders have been aggressive buyers of the stock for years. This past March, director Ray Davis bought nearly $15 million in ET stock, and founder Kelcy Warren scooped up about $90 million in February. To say that management is committed would be an understatement.

Shell Midstream Partners LP

Market value: $6.0 billion

Distribution yield: 12.0%

For one final midstream pick, consider Shell Midstream Partners (SHLX). As its name suggests, Shell Midstream is joined at the hip with supermajor Royal Dutch Shell (RDS/A). Shell spun off some of its pipelines and other midstream assets to form Shell Midstream in 2014.

Having the backing of one of the largest integrated energy companies in the world is a major plus. While Royal Dutch Shell is not obligated to financially backstop Shell Midstream, it would be a major blow to the supermajor's reputation to allow a company bearing its name to hit the skids. It also helps that there is a financial incentive. Royal Dutch Shell owns around 69% of the limited partnership units. So, it's fair to say that Royal Dutch Shell has some skin in the game here and is incentivized to see Shell Midstream do well.

After the selloff in energy shares, Shell Midstream yields a very attractive 12%. The tradeoff is that it's a bit riskier than most of these other retirement stocks.

In its most recent quarterly results, SHLX said it intended to keep its payout stable for the time being. Visibility isn't great in the oil patch, and Shell Midstream is being extremely cautious; the company indicated it is making all distribution decisions on a quarter-by-quarter basis. Uncertain investors might want to wait to see if the recovery in oil prices sticks a while longer before jumping in.

International Paper

Market value: $15.3 billion

Dividend yield: 5.3%

In a world that goes more digital by the day, it might seem a little odd to recommend an old-economy paper company. But if you believe in the long-term growth of internet commerce, then International Paper (IP) should interest you.

International Paper is the world's largest producer of fiber-based packaging, pulp and paper. Whenever you order something online, it gets delivered in a large envelope or box. International Paper produces the material used to make that envelope or box.

That's the investment thesis. It really is that simple.

Demand for paper and packaging is somewhat cyclical, of course. In a recession, there is less economic activity. But remember, regardless of what phase of the economic cycle we're in, the long-term, secular trends of commerce moving online remains intact. And if anything, the COVID-19 pandemic has accelerated that trend. Once this panic has subsided, shoppers that have gotten used to home delivery may not return to the malls, or at least not the extent they did before. That's fantastic news for International Paper.

At current prices, International Paper yields more than 5%, which still is higher than at most points over the past decade. Moreover, IP has raised its dividend every year since the financial crisis ended in 2009.

United Parcel Service

Market value: $92.0 billion

Dividend yield: 3.8%

Along the same lines, United Parcel Service (UPS) is a company with fantastic tailwinds behind it. As more commerce moves online, there will be more demand for package delivery.

The trend is in place. For UPS, the challenges will come from competition. Fortunately, Amazon.com (AMZN) – which had been busily building out its infrastructure – announced in April that it would pause its competing delivery service for non-Amazon packages. Still, it's possible that, at some point in the not-too-distant future, Amazon will actively compete with UPS for the delivery of third-party packages.

The model is also evolving with gig drivers. Uber Technologies (UBER), Lyft (LYFT) and other ride-hailing drivers can and do deliver short-haul packages.

At the same time, a rising tide lifts all boats. Increased online traffic should allow for UPS to thrive, even with increased competition.

UPS shares took a tumble in March and still remain far below their highs for the year. But that's good for new money looking for retirement stocks to buy, as UPS shares still deliver an attractive yield near 4%.

Main Street Capital

Market value: $2.2 billion

Dividend yield: 7.2%

The COVID-19 bear market and recession has hit the Main Street a lot harder than Wall Street. With many smaller companies forced to close or seeing their demand dry up, it's been a difficult year.

The woes of the proverbial "Main Street" are evident in the performance of Main Street Capital (MAIN), a blue-chip business development company (BDC). Main Street Capital provides debt and equity financing to middle market companies that aren't quite large enough to go to the public debt and equity markets. Apart from funding growth, Main Street Capital also finances management buyouts, recapitalizations and acquisitions.

Like REITs, BDCs are required to pay out substantially all of their earnings in the form of dividends. This makes them a favorite among retirees looking for income. But it also means BDCs can't keep a lot of cash on hand, which can make it hard to maintain a steady payout during a downturn. Many BDCs have to cut their dividends after a slow quarter or two.

That's a problem if you depend on the dividend to pay your bills in retirement. But Main Street solves this problem by keeping its regular monthly dividend comparatively low, then topping it off semiannually with special dividends that can be thought of as "bonuses."

At current prices, Main Street yields an attractive 7%-plus based solely on its regular dividend. The semiannual special dividends likely will be skimpy for the next year or two, but that's fine. MAIN's primary payout is competitive on its own.

International Business Machines

Market value: $117.3 billion

Dividend yield: 4.9%

A rough year? For International Business Machines (IBM), try a rough decade.

The emergence of Amazon.com's Amazon Web Services (AWS) launched the cloud computing revolution and really upended IBM's traditional hardware and services businesses. IBM was slow to embrace the cloud and has been forced to play catchup in recent years.

Better late than never.

IBM's annual revenues dropped from $107 billion in 2011 to just $77 billion in 2019. But earlier this year, the company announced it had returned to growth following its acquisition of Red Hat and a revamping of its mainframe offerings. Those plans might look a little suspect today due to COVID-19 putting a lot corporate spending on hold. But when life returns to something closer to normal, we should see a leaner, more competitive IBM ready to blossom again.

In the meantime, retirement investors can enjoy IBM's nearly 5% dividend yield. That payout, by the way, has been on the rise every year since 1995, including a penny-per-share hike earlier in 2020 that qualifies "Big Blue" for inclusion in the Dividend Aristocrats.

LyondellBasell Industries

Market value: $25.0 billion

Dividend yield: 5.6%

Fans of the 1967 film The Graduate will no doubt remember Mr. Robinson's one word of advice to young Benjamin: "Plastics."

Well, we can't base a retirement portfolio entirely on one word. But it might be sound advice nonetheless. Specialty chemicals giant LyondellBasell Industries (LYB) is primarily in the business of selling plastics and petrochemicals, but it also has a large refinery business that makes gasoline, diesel fuel and jet fuel.

Chemical companies are cyclical in nature, as are refiners. They tend to do well when the economy is humming, and not so well when it's not. Thus, it's not surprising that LYB shares were beaten up in March. What is surprising is the sheer magnitude of the fall. Before the dust settled, LyondellBasell had fallen by about two-thirds from its 52-week highs.

Shares bottomed out in late March and have been trending higher ever since. But at -20% year-to-date, they still have some catching up to do. They also offer up a yield of well more than 5%.

Wall Street seems to think that LYB is more cyclical than it really is. Roughly half the company's business is making plastic packaging for food and basic consumer products, which is about as recession-proof and quarantine-proof as you can get. We can take advantage of this mispricing and stuff this 5.6% yield into a portfolio of other retirement stocks while we wait for Wall Street to come around.


Market value: $16.1 billion

Dividend yield: 7.3%

This is a list of conservative and reasonably priced stocks fit for a retirement portfolio. But with this next recommendation, we might be taking just a little more risk given the current circumstances.

Ventas (VTR) is a world-class REIT with a long track record of delivering solid total returns. Unfortunately, it happens to be in the business of providing senior housing (53% of its net operating income comes from senior housing). And in case you missed the memo, COVID-19 is particularly deadly for elderly patients. The thought of being trapped in a plague house has led a lot of seniors to delay moving into senior living centers, which caused Ventas to revise its earnings guidance for the year.

Investors hate uncertainty, and that's exactly what we have here. But a couple things are worth mentioning. First, nearly half of Ventas' portfolio is invested outside of senior housing, primarily in medical office buildings. And even if the senior housing portfolio has a rough couple of quarters, it's difficult to see this causing severe financial distress to the company. Ventas has a strong balance sheet and an experienced management team.

Shares are still more than 50% below their 52-week highs and at current prices yield more than 7%. We actually warned against buying Ventas back in early March, right before it lost another two-thirds of its value. But now that VTR is in recovery mode, it could be right for aggressive retirement investors looking for a more speculative income play that could have strong upside once the coronavirus threat is finally cleared.

If you're looking a real estate play that's more in line with the previous conservative calls, consider our next and final pick instead.

Vanguard Real Estate ETF

Market value: $30.1 billion

Dividend yield: 4.1%

Expenses: 0.12%, or $12 on a $10,000 investment

We'll wrap this look at retirement stocks with a broad play on the REIT sector: the Vanguard Real Estate ETF (VNQ). This real estate fund has been steadily recovering since late March but remains 15% below its pre-virus highs.

The COVID-19 bear market and recession were unique animals that hit landlords particularly hard. In a typical recession, demand falls and consumers pull back, and tenants have a hard time paying the rent. This time around, businesses were closed by government mandate, and traffic has remained slow even as the lockdowns have been lifted. This has been hard for all landlords, even large public ones. Some have been forced to cut their dividends, at least temporarily.

But it's important to note that VNQ's largest holdings are REITs that have been largely immune to quarantine restrictions, such as cell tower REITs American Tower (AMT) and Crown Castle International (CCI), which together make up 14% of the portfolio. Logistical and data center REITs are also well represented and have seen virtually no setbacks to their businesses due to the pandemic.

It may take several quarters or even a couple years for the economy to fully heal from the virus dislocations. But high-quality real estate does not become permanently impaired due to a rough patch like this. Properties that were in demand before the world ended will still be in demand once all of this is over.

In the meantime, VNQ offers us broad exposure to the sector and an attractive 4%-plus dividend while we wait for the world to return to normal.

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