Dividend stocks, in general, are the best kinds of investments to have in retirement. They provide both the supplemental income when it’s time to rely on one’s nest egg while also allowing retirees to keep growing wealth through stock appreciation and higher dividend payments over time. That isn’t something you are going to get from cash under a mattress or from bonds.
Making the most of dividends in retirement means picking great dividend stocks that will be able to provide a steady stream of income for years to come, and it’s helpful if said stocks pay a high yield today. So we asked three Motley Fool investors to each highlight a stock they think is a perfect fit in a retirement portfolio. Here’s why they picked the following stocks:
Top 5 Cheap Stocks To Buy Right Now: Orange(ORAN)
The company formerly known as France Telecom offers a somewhat unusual dividend policy. The payouts don’t always rise year over year, the way you might expect from an American dividend hero. Instead, the company adjusts its payouts up and down as needed, responding to cash flow trends and upcoming expenses.
Over the last five years, Orange’s trailing dividend payouts have bounced around between $1.3 billion and $1.8 billion.
What’s more, the normal cadence of quarterly dividend checks is replaced by a biannual schedule — Orange sends out those dividends once every six months.
European investors are used to these things, even if Americans aren’t.
Either way, Orange’s current dividend yield stands at a fantastic 5.6%. The stock has been lagging the overall market in recent years, hampered by the rise of low-cost rivals in France and other major European markets. In the long run, Orange’s growth strategy hinges on high-speed broadband services and expansion in underdeveloped markets such as Poland and Romania. That’s the one service consumers in western Europe are still willing to pay a premium for.
The company is also exploring Africa in a big way with mobile networks in 21 countries on that continent. Thirteen of these markets have fast and reliable 4G networks already and the rest will follow.
So Orange’s dividend payments may be a little bumpy and unpredictable, but the business foundation is strong and I expect healthy growth for many years to come. The dividends will follow suit, and it’s hard to complain about a nearly 6% payout based on an undervalued stock.
Top 5 Cheap Stocks To Buy Right Now: NVR Inc.(NVR)
The fact that inventory turnover is incredibly low in this business is part of the reason why NVR is one of the more attractive stocks in this industry. Typically, a homebuilder will buy large plots of land, divided it up into lots, lay the initial groundwork like roads and utilities, build a couple display homes, get a customer to sign a contract to have a home built, then build the home before it can recognize revenue.
With all of those steps, it can be an incredibly speculative business. Are land purchases today going to be favorable locations two to three years from now? Is the housing market going to remain strong? How much leverage can a company take on to develop these lots before it needs to have revenue coming in the door? These sorts of questions are the ones that will keep a homebuilding management team awake at night.
Instead of sweating the more speculative aspects of the business, NVR agrees to land purchase agreements with land developers. Think of it as a futures contract: NVR pays a small amount of cash to a developer up front, which gives it the right to purchase completed lots at deep discounts. This drastically reduces the amount of capital the company needs to commit to a development before it can start to recognize revenue, and the company doesn’t have to take on an immense amount of speculative risk or leverage.
Another attractive aspect of NVR’s business model is that it focuses on performing exceptionally well in its limited geographic markets rather than have operations thinly spread across the country. By concentrating its efforts into the Mid-Atlantic and Great Lakes region, it can squeeze out operational efficiencies and generate the highest rates of return in the business. By remaining a regional player, it also means the company generates excess cash, which management uses to buy back stock at a high rate.
If there is one thing that concerns me about NVR, it’s that management may be a little too generous with its stock grants such that it impacts shareholder returns. A lot of NVR’s value creation comes from a consistently lower share count, but stock grants to management have more than offset share repurchases over the past 18 months. If that issue is just a short-term blip, then NVR looks like a great investment.
Top 5 Cheap Stocks To Buy Right Now: Party City Holdco Inc.(PRTY)
Shares of Party City have surged 68% from their 52-week low, and are up 31% over the last six months as Wall Street comes to celebrate the retailer’s partylike atmosphere. While no business is completely immune from the impact of Amazon.com, Party City is one of a handful of businesses that look Amazon-resistant.
It operates some 880 stores. But the big kick are the 250 to 300 Halloween-themed outlets like Halloween City that spring up nationwide every fall and end up contributing about 20% to total revenue. It’s the biggest holiday of the year for the specialty retailer.
But beyond its own stores, it is less well known that Party City also distributes party items to over 40,000 retail outlets worldwide. Third-party wholesale revenue amounted to $629 million in 2017, or 26.5% of its total of $2.37 billion.
Despite all the gains it’s made, there is still plenty of opportunity for growth and expansion, especially since Party City is trading as if it were a broken business. Its stock is valued at only 14 times trailing earnings and seven times next year’s estimates, while also going for a deeply discounted eight times free cash flow. So investors who pick up Party City stock now may have a reason to celebrate later on.
Top 5 Cheap Stocks To Buy Right Now: Copa Holdings, S.A.(CPA)
In her just-released updated edition of How to Retire Overseas (Everything you need to know to live well (for less) abroad), travel writer Kathleen Peddicord speaks glowingly of Panama City, Panama, as a perfect destination for retirement — so much so that she recently moved to the city as her own business’s new home base.
Panama City has a little bit of everything that retirees might want, starting with a low cost of living, and running through first-world infrastructure and a first-rate healthcare system, tax benefits for retirees and ease of opening a business in retirement, and ending with easy access to "home" in the U.S.
One of the reasons American retirees in Panama City have such easy access to U.S. cities is Copa Holdings, parent company of Copa Air, which services 75 destinations in 31 countries (the U.S. included) out of its hub and headquarters in Panama City.
Copa is growing like a weed — and I’m not just talking about its flight plans. Copa pays its shareholders a big 3.7% dividend yield, but it’s so profitable that this consumes barely 30% of its profits. Copa reported $404 million in GAAP profit over the past year, giving it a P/E ratio of 10. That compares favorably to analysts’ projected 13% growth rate for the stock — and Copa is even cheaper when valued on free cash flow.
If you’re a retiree, and perhaps considering Panama City as a place to retire, I think Copa Holdings is a fine dividend stock to consider investing in as well.
Top 5 Cheap Stocks To Buy Right Now: Kinross Gold Corporation(KGC)
Kinross Gold wouldn’t have made it to this list if not for the stock’s drop in recent months. Kinross was, in fact, one of the top-performing gold-mining stocks in 2017, but the market hasn’t found a reason to pump more money into the stock so far this year.
Kinross shares took a deep dive earlier in the year after the miner reported fiscal 2017 numbers. Here’s how it fared.
|Gold production (in ounces)||2.67 million||2.79 million|
|Revenue||$3.3 billion||$3.47 billion|
|Net profit/loss||$445.4 million||($104 million)|
|Adjusted net profit||$178.7 million||$93 million|
|All-in sustaining cost (AISC) per gold equivalent ounce||$954||$984|
DATA SOURCE: KINROSS GOLD.
For fiscal 2018, Kinross expects:
- Gold production of 2.5 million ounces
- AISC of $975 per ounce
- Capital expenditure of $1.1 billion compared with $897 million in 2017
While asset impairments reversal and sale proceeds helped Kinross earn a big profit last year, lower production and higher cost estimates for 2018 didn’t go down well with the market. Higher capital expenditures could also mean lower free cash flow (FCF) — Kinross generated $54 million in FCF last year.
NOT EVERY GOLD STOCK THAT’S ON SALE IS A BUY. IMAGE SOURCE: GETTY IMAGES.
In May, the market pummeled Kinross again for lower first-quarter profit. In reality, Q1 was a strong quarter, with revenue climbing 13% and AISC dipping to a record low of $846 per gold-equivalent ounce. Kinross’ key phase one expansion at Tasiast is near completion and expected to boost throughput capacity to 12,000 tons per day during the latter half of the year. Other projects, including Round Mountain and Bald Mountain in Nevada and Fort Know Gilmore in Alaska, are also on schedule and budget.
I don’t see anything wrong with Kinross: It has a strong pipeline of projects that should boost production and lower costs over time, has ample liquidity at hand, strong cash flows, and no debt maturing until 2021. Gold investors might want to put Kinross’ ill-timed investments in the rearview mirror and put the stock on their radar.