I think shares are the only assets worth holding for retirees, aside from a good amount of cash.
Most shares pay a higher (grossed-up) yield than what you can get at the bank. Businesses are also the best chance of growing your income at a rate of at least the rate of inflation.
With that in mind, here are three shares that could be good for retirees:
Rural Funds Group (ASX: RFF)
Rural Funds is a real estate investment trust (REIT) that owns a variety of farm types including almonds, macadamias, cattle, poultry, vineyards and cotton.
Farmland has been a good investment for hundreds of years and food is obviously essential to our lives. The tenants of Rural Funds, like Select Harvests Limited (ASX: SHV) and Treasury Wine Estates Ltd (ASX: TWE), carry the operational risk of running the farms not Rural Funds itself.
Other than owning long-term assets with long-term tenants, I like Rural Funds because it has rental indexation built into all of its contracts. That’s why management can confidently predict that the distribution will increase by 4% a year over the long-term. It can also invest in the farms to improve its capital and rental value.
It’s currently trading with a distribution yield of 4.64%.
Naos Emerging Opportunities Company Ltd (ASX: NCC)
Listed investment companies (LICs) can be a good way for retirees to get a diversified portfolio through just one share, it can perhaps create market-beating performance if you have a high-performing manager running the LIC.
This is a LIC run by Naos which aims for long-term performance by investing in businesses with a market capitalisation of under $250 million. These businesses have the greatest potential because it’s much easier to double a small business’ profit than a large one’s profit.
Over the past five years its portfolio has returned 14.59% per annum, before fees.
It has steadily increased its dividend every year since it started paying one in the second half of FY13. It currently has a grossed-up dividend yield of 8.4%.
Challenger Ltd (ASX: CGF)
Challenger provides annuities for people to turn their capital into a guaranteed source of income. If you’re thinking about getting an annuity it might be an idea just to buy shares of the annuity provider itself.
The number of people over the age of 65 is expected to increase by 75% over the next two decades, which could be a good tailwind for Challenger as more people look for safety in retirement.
It’s currently trading with a grossed-up dividend yield of 4%.
All three shares could give investors a solid income to start with and grow steadily over time with both capital appreciation and growing dividend income. At the current prices I’d likely go for Challenger and perhaps Naos.
Rural Funds is trading expensively compared to the value of its farms and the Naos LIC comes with fees, which can eat away at your investment returns if it doesn’t outperform the market.
Another share that could be good for a retiree’s portfolio is this dependable business which just expanded to Asia.
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Motley Fool contributor Tristan Harrison owns shares of Challenger Limited and RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended Challenger Limited and RURALFUNDS STAPLED. The Motley Fool Australia has recommended Treasury Wine Estates Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.