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Retirees should be highly focused on capital preservation in 2012. Due to the significant risk surrounding the global economy, U.S. equity prices are vulnerable to large pull backs in 2012. At the forefront is the lingering European debt crisis and significant refinancing of the periphery debt in early 2012. In addition, the slowing U.S. economy and weak employment and housing environments continue to weigh on domestic growth.

While the Federal Reserve has kept rate near zero for 36 months, retirees have had to seek yields in non risk-free assets. Given the likely turbulence in 2012, I advise retirees to focus on high quality, low levered U.S. equities, while avoiding highly levered companies.


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Screen Criteria:

  • Dividend Yield greater than 2.0%
  • Price to Earnings less than 20.0x
  • Debt to EBITDA less than 2.0x
  • Earnings per share and dividend growth of greater than 5% (OTCPK:CAGR)
  • Long-term payout ratios of less than 60%

Equities Appropriate for Retirees

Johnson & Johnson (NYSE:JNJ)

  • Dividend Yield: 3.5%
  • Price to Earnings: 16.1x
  • Market Capitalization: $180.3 billion
  • Debt to EBITDA: 0.9x

Abbott Laboratories (NYSE:ABT)

  • Dividend Yield: 3.4%
  • Price to Earnings: 19.4x
  • Market Capitalization: $87.6 billion
  • Debt to EBITDA: 1.5x

McDonald's Corporation (NYSE:MCD)

  • Dividend Yield: 2.8%
  • Price to Earnings: 19.7x
  • Market Capitalization: $102.8 billion
  • Debt to EBITDA: 1.3x

Exxon Mobil Corporation (NYSE:XOM)

  • Dividend Yield: 2.2%
  • Price to Earnings: 10.3x
  • Market Capitalization: 408.7 billion
  • Debt to EBITDA: 0.2x

Walgreen Co. (NYSE:WAG)

  • Dividend Yield: 2.5%
  • Price to Earnings: 11.3x
  • Market Capitalization: $29.3 billion
  • Debt to EBITDA: 0.5x


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Equities to Avoid

I am avoiding mortgage REITs including Annaly Capital Management. Given the recent dividend cut and sensitivity toward prepayment rates I am sitting on the sidelines and waiting for better prices to get back into mortgage REITs. I would re-enter a position in Annaly at around 0.85x book value or if we experience an increase in prepayment rates which would be reflected in the stock price.

Annaly Capital Management (NYSE:NLY)

  • Dividend Yield: 13.5%
  • Price to Earnings: 12.0x
  • Market Capitalization: $15.8 billion
  • Leverage: 5.5x
  • Price to Book Value: 1.0x
Source: 5 Stocks For Retirees And 1 To Avoid