Retirement Riches: 3 Stocks That Can Beat Bonds for Income

Stocks to buy

The best retirement portfolios, even those with heavy positioning in fixed income assets like bonds, may need rebalancing from time to time. And, as older Americans fear financial uncertainty, traditional retirement planning may no longer be enough. Retirees face declining investment balances and a longer life expectancy, increasingly looking to their equity portfolios to generate not only growth but income. This is inspiring investors to seek out stocks that can beat bonds.

Of course, picking the right stocks that won’t drop overnight is important, as capital preservation is a top priority for those who need to utilize their hard-earned capital in the coming years.

While bonds could certainly continue to rally and are worth holding into a Federal Reserve rate cutting cycle, there are some stocks that could benefit as well. Each of the three income stocks on this list are among the highest-yielding names in the market right now. These are also large-cap companies with stable business models I think provide relative stability and are worth considering on pullbacks.

Diamondback Energy (FANG)

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Diamondback Energy’s (NASDAQ:FANG) low price-earnings multiple is consistent with the decline in the energy industry brought on by the waning oil prices. Despite modest improvements, the Diamondback’s valuation still lags the majority of its Nasdaq 100 counterparts. Notably, analysts covering the stock have a consensus target price of $181 and rank it as an overweight or buy.

I think FANG stock could actually be trending toward the higher end of analysts’ price garget ranges, with a $240 target price not detached from reality. As the company continues to grow, and passes on this growth to investors in the form of dividends, demand for FANG stock should increase over time. Additionally, despite price-related concerns, positive Q3 production results and awaited Q4 growth numbers boost this stock’s prospects over the medium-term.

Importantly, Diamondback Energy and Endeavor Energy Resources recently shook hands to merge, forming the largest Permian Basin producer. On the one hand, CEO Travis Stice patted the back of the merger’s enhancement and integrations. While on the other, Endeavor CEO Lance Robertson viewed it as transformative, spotlighting scaling and long-term success. Diamondback won over ConocoPhillips, making Shell, Exxon and Pioneer turn their heads toward them.

Crown Castle (CCI)

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Since the curtains opened on 5G and soaring mobile data demand has proliferated, carriers are investing heavily in network expansion. Crown Castle (NYSE:CCI) has a giant web of fiber and cell towers, positioning the company well to take advantage of the long-term secular growth trends supporting its business.

Importantly, Crown Castle has continued to add to its investments in fiber and small-cell technology. The company is eyeing adding 16,000 new nodes in 2024, polishing its 5G strategy, and maintaining a solid balance sheet and liquidity.

With a net debt to last quarter’s EBITDA of 5.3-times, and a weighted average term to maturity of eight years, Crown Castle exited Q4 2023 with $105 million in cash and equivalents in its pockets. I think this is a company that’s positioned for well long-term growth with investment-grade credit ratings for S&P, Fitch, and Moody’s. For a company in a highly capital-intensive business, this is a good thing, and should ensure dividend stability moving forward.

3M (MMM)

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3M’s (NYSE:MMM) shining value and 6.5% dividend yield puts it on an investment pedestal, despite concerns around the company’s slowing growth. Its wide-ranging industry presence sets the seal on continuous demand, with long-term investors continuing to benefit from its high dividend, even in times where MMM stock stagnates.

Indeed, 3M’s 2023 operational performance packed a punch, with the company’s adjusted earnings per share rising 11% and cash flow crossing the $6.3 billion line. The company shrunk its net debt by $2 billion (17%) and returned $3.3 billion to shareholders through dividends. The healthcare business spin-off on the horizon will enhance the balance sheet. Strong cash flow will grant flexibility and resilience against challenges.

3M has experienced restructuring and acquisitions in the middle of difficulties, which affected the performance of its shares. However, now trading around $93 per share (not too far from a 52-week low), MMM stock remains a buy for those looking for consistent dividends and dividend growth over time.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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