Today’s retirees are focused on “safe” income. Due to Federal Reserve interest rate policy and significant sovereign debt loads retirees have been force to seek yield in non-risk-free assets.
I think sticking with high-quality U.S. companies that have less cyclical business models is wise for retirees.
Screen Criteria
- Sectors: telecom, consumer non-discretionary, tobacco, utilities – these sectors tend to exhibit strong and stable cash flow and are less dependent on the overall health of consumer spending.
- Debt to EBITDA less than 3.5x – focused on companies that carry relatively modest leverage.
- Dividend Yield greater than 3.5% – focused on companies that generate healthy yields for investors.
- Price to Earnings less than 18.0x – focused on relatively inexpensive equities.
AT&T, Inc. (telecom)
- Market Capitalization: $175.7 billion
- Price to Earnings: 15.1x
- Dividend Yield: 6.0%
- Debt to EBITDA: 1.8x
The company has a scaled and established business model with access to relationships with millions customers (residential and business). There are limited scale players in the industry and the threat of new entrants is low due to the capital requirements.
Verizon Communications Inc. (telecom)
- Market Capitalization: $111.2 billion
- Price to Earnings: 15.8x
- Dividend Yield: 5.1%
- Debt to EBITDA: 1.3x
Vodafone Group Plc (telecom)
- Market Capitalization: $87.3 billion
- Price to Earnings: 12.7x
- Dividend Yield: 5.1%
- Debt to EBITDA: 2.5x
Verizon and Vodafone have a strong balance sheet and its wireless business is a leader in the industry. The Company has over 100 million customers and has the best coverage in the U.S. Similar to AT&T the business model is recurring and stable.
Waste Management, Inc. (waste management / consumer non-discretionary)
- Market Capitalization: $14.9 billion
- Price to Earnings: 15.8x
- Dividend Yield: 4.4%
- Debt to EBITDA: 2.9x
Waste Management services are non-discretionary. The company has a scale and expansive footprint, which provides strong free cash flow and a healthy dividend.
Altria Group, Inc. (tobacco)
- Market Capitalization: $62.4 billion
- Price to Earnings: 17.8x
- Dividend Yield: 5.4%
- Debt to EBITDA: 2.0x
Altria has nearly 50% market share in the U.S. While smoking is in a long-term decline, the company’s loyal customer base provides stable cash flows.
Consolidated Edison Inc. (utilities)
- Market Capitalization: $18.0 billion
- Price to Earnings: 16.6x
- Dividend Yield: 3.9%
- Debt to EBITDA: 3.4x
The company operates a regulated business with strong pricing power. Operating in a regulated industry provides strong barriers to entry for competitors.
Disclosure: I am long T, MO, WM.
