Investors in, or approaching, the retirement phase of their life have very different priorities to others. You want stable growth, income in the form of fully franked dividends and most of all: safety.
However, rarely do the words safety and stockmarket go hand-in-hand. Generally, some advisors will pull a card of proportionality and suggest the larger a company is, the safer it is. This is incorrect. A well-priced and strong mid-cap company should not be overlooked merely because it's not a blue-chip stock.
As a buy and hold investor (as many should be in retirement) it's important you find business models which will always pay a dividend – whether in a recession or boom – and make a profit. If possible, you should also focus your attention on companies which benefit from monopoly-like dominance.
These three companies offer sustainable earnings, modest growth profiles, manageable debt and, perhaps most importantly, they give customers a product which they rarely balk at.
Today, NIB Holdings Limited (ASX: NHF) released its half-yearly report which showed promising increases across all important metrics including, premium revenues (up 20%), operating profit (up 18.5%), net profit (up 9.2%) and dividends (up 5%). As many would know, NIB is a health insurance provider to the retail markets of Australia and New Zealand. NIB has a stable dividend, forecast to be 4.2% fully franked this year.
Everybody knows Telstra Corporation Ltd's (ASX: TLS) legendary dividend but many fail to recognise its exciting growth prospects. Its venture into Asia, growing network applications division and shrinking reliance on copper cables are a move in the right direction, and will enable the company to grow earnings in coming years. Some analysts have called Telstra a "proxy for bonds" because it pays such a renowned dividend yield. At its current share price the payout totals 5.4% fully franked.
In retirement, many Australians choose to buy property because it's a stable and safe boat. Fundamentally the price of a property goes up because – unlike shares – it is unique in its position and build. However, there are companies that also exploit this trait by positioning themselves accordingly.
Transurban Group (ASX: TCL) owns and operates toll roads in Australia and the United States. Its roads include Eastlink, Citylink and Hills M2 among others. Demand for its roads is increasing. As are the costs of using them. Management recently hinted the dividend will increase to 35 cents per share in 2014 – giving it a forecast yield of 4.9% with partial franking.
Foolish takeaway
In retirement, it's important to find sustainable business models which have consistently outperformed the market and rest little on business and economic cycles. These three companies come with a proven track record and very strong market positions enabling them to slot easily into a long-term portfolio.
