When retiring, investors have two major considerations:
- Earning a decent income, and
- Capital preservation
After all, there's no point having a high-yielding portfolio if the value of your investments falls and wipes out a significant amount of your capital.
To be clear, investors should expect volatility in their investments – that is, prices will go up as well as down. The worst of the swings can be minimised, however, by choosing to invest in less risky stocks as well as those with a stronger financial position.
(You can find a related article "5 retirement resolutions to make for 2016" in this article here)
Here are three picks that deserve a spot in any potential retiree's portfolio:
Flight Centre Travel Group Ltd (ASX: FLT) – trades on a P/E of 14, yields 4.4% fully franked
Flight Centre operates the eponymous travel agent in locations around Australia and many other markets around the globe. While the Australian market is mature, the company is reporting respectable growth in its overseas locales, and its presence in foreign markets gives it an edge in package holiday deals.
Importantly, statistics indicate the travel industry is resistant to a weak Australian dollar, and Flight Centre has a sound balance sheet along with loads of cash that will underpin its dividend going forwards. With growing foreign earnings, I wouldn't be surprised to see Flight Centre yielding above 5% in the next few years.
Retail Food Group Limited (ASX: RFG) – trades on a P/E of 12, yields 5.5% fully franked
Retail Food Group operates a wide variety of Australian franchises including Gloria Jean's, Donut King, Michel's Patisserie, Brumby's, and more. The company controls more than a third of the Australian coffee-roasting market – enough to give it some competitive advantages – and is expanding into a number of overseas locations.
Retail Food Group is expanding and the company is still managing to grow earnings per share and dividends considerably, and with great cash flow its 5.5% dividend looks quite secure.
Telstra Corporation Ltd (ASX: TLS) – trades on a P/E of 16, yields 5.8% fully franked
Telstra needs no introduction, as its legendary dividend has been a favourite of many household investors for the past decade or more. Some have grown concerned that the company is under threat from competitors like Vocus Communications Limited (ASX: VOC) and similar, but Telstra is still far and away the most dominant telecom player in Australia.
Plans to expand overseas are likely to generate attractive returns to shareholders as well as increased foreign currency exposure, which is great given that the Australian dollar looks like staying down for the foreseeable future. While capital-intensive, Telstra's businesses generate piles of cash, underpinning a very generous dividend.
