Top Stocks to Buy in Retirement

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Retirement is the time you’ve earned to pursue your passions, spend time with the ones you love, and treat your mind and body with care. The last thing you want to do is waste time and energy worrying about money. That’s why it’s so important to buy top-quality retirement stocks for your nest egg — and then just let them be.

Most articles of this type will focus on consumer-goods companies that provide stuff that you use and need on a daily basis. I’m talking about Johnson & Johnson — the medical conglomerate that provides everything from Band-Aids to Tylenol to breakthrough drugs — orGeneral Electric. And while I certainly do think these make fine retirement stocks — and I certainly will be including one stock of the ilk — I will also be breaking with tradition somewhat.

For investors who are just nearing — or entering — retirement and will count on their nest eggs for a number of decades, I have selected two stocks with (1) huge moats surrounding their business, (2) extremely solid balance sheets, and (3) the potential to offer solid dividends.

Let’s start with a tried-and-true stalwart

To start with, we have Procter & Gamble (NYSE:PG), owner  of 22 brands with over $1 billion in global annual sales (Gillette, Duracell, Bounty, Tide, and so on), and another 19 that bring in at least $500 million annually (among them NyQuil, Febreeze, Prilosec).

The power of those brands alone should be enough for retirees to consider putting P&G stock in their portfolio. Given the company’s recognizable and trusted products with a global reach, customers are willing to pay slightly more for the quality that they have become accustomed to. This advantage allows P&G to incrementally raise prices, outpacing and outperforming its rivals.

But the company’s dividend is also worthy of praise. Currently yielding 3.2%, P&G’s record of increasing free cash flow (FCF) gives me confidence that the payout is both safe and has room for growth. In fact, management has increased the company’s dividend for 62 straight years.

To get a better idea of how it does this, look at the company’s FCF and dividend payments since 2010.


Even during the tightest year — which started in the summer of 2013 — the company used only 69% of its FCF to pay the dividend. To me, that makes it a very safe pick.

The largest moat ever seen?

While the investing duo of Warren Buffett and Charlie Munger have built a fortune atBerkshire Hathaway, they have traditionally shied away from technology companies. That didn’t stop the two from saying in 2009:

Google has a huge new moat. In fact I’ve probably never seen such a wide moat. I don’t know how to take [the moat] away from them. Their moat is filled with sharks!”

The crazy thing is that in the intervening seven years, Alphabet‘s (NASDAQ:GOOGL)(NASDAQ:GOOG) moat has only widened. The company has seven products with over abillion active users. That reach has allowed the company to compile an unmatched treasure trove of data that advertisers are willing to pay top dollar for.

But what about a dividend? The company doesn’t pay one — yet. But look at the cash on hand (including long and short-term investments), as well as the FCF the company has generated over the past four years, and it’s not too hard to imagine a future where a payout was included.


To put this in perspective, if Alphabet decided to use half of its cash to pay a special dividend, it would yield $129 per share, or about a 16% yield. Even if it used only half of its FCF — a much more likely scenario — it would yield $34 per share, or 4.3%.

There’s no guarantee that this will happen. But the company is investment-worthy even without a dividend, so any potential payments in the future can be viewed as purely icing on the cake.