14 Stocks For a Boomer's Retirement Portfolio

As the baby boomers start to retire, making their investment nest eggs last will be a priority.

Rising life expectancies coupled with escalating health-care costs will force the baby boom generation to rethink the conventional retirement wisdom of cashing in stocks for bonds.

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David Williams — who will be retiring at the end of 2012 after 37 years as a mutual fund manager, including the last 18 years at the helm of $6.4 billion Columbia Value & Restructuring — cautions fellow boomers not to get too conservative.

Instead, he recommends buying and holding blue-chip stocks that not only throw off income but can also deliver steady share price growth.

"We believe that higher quality companies will provide better risk-adjusted returns over full market cycles," adds Jason Lilly, co-manager of the Bright Rock Quality Large Cap Fund and a financial advisor catering to the generation entering their golden years.

High-quality stocks that can produce both growth and income play an important part in enabling boomers to maintain a comfortable lifestyle through what's likely to be a long retirement.

Stocks with staying power possess similar qualities — market leadership, shareholder-friendly management, strong balance sheets, consistent profitability and healthy cash flow.

With that in mind, here are 14 stocks to consider as core holdings for the future:

Dividend Payers

  • Verizon

This play on the mobile Internet pays a handsome dividend of 5.4 percent. If the Apple iPhone expands its dominant position in the smartphone market, Verizon will be able to play up its network advantages over other carriers.

Doug Kreps, manager of the Fort Pitt Capital Total Return Fund, is also excited about the prospects for its FIOS multi-media service, which should increase bundled sales of phone, Internet and cable, and its FlexView video on demand service.

  • JPMorgan Chase

No bank survived the financial crisis better than JP Morgan. By picking up Bear Stearns and Washington Mutual on the cheap, the bank gained market share in both investment banking and retail banking.

Wall Street pros cite CEO Jamie Dimon’s astute management and the firm’s financial strength as reasons to hold the stock for the long haul. The stock currently yields 2.4 percent, and Mitchell Goldberg of Clientfirst Strategy in Woodbury, N.Y., expects JPM to grow its dividend the fastest among the biggest U.S. banks.

  • Novartis

Pharmaceutical stocks should be a core holding of any investor looking for growth and income. While a handful of drug makers could have made our list, Switzerland’s Novartis stands out for its solid lineup of blockbusters (Lucentis for vision problems, cancer drugs Glivec and Tasigna, and newly approved Gilenya for multiple sclerosis) and what analysts consider one of the industry’s most promising pipelines. Standard & Poor’s recently raised its price target on the stock, which yields 3.3 percent, to $72.

  • Boeing

A global aircraft duopoly with Airbus leaves Boeing well positioned to benefit from robust growth of passenger traffic in emerging markets like China and India. The aircraft maker estimates China alone will purchase 4,330 new planes over the next 20 years.

Your Job, Your Life - A CNBC Special Report
Your Job, Your Life - A CNBC Special Report

While the company is struggling with repeated delays on its 787 Dreamliner jet, Fort Pitt’s Kreps points out that it maintains a healthy backlog of orders for its mainstay 737 and expanded 747 models and is increasing production rates. Boeing’s defense business should get a lift from a $35 billion tanker contract with the Air Force won in early 2011. The company has grown its dividend 40 percent over the last four years and the stock currently yields 2.3 percent.

  • Abbott Labs

In a tough environment for most health-care stocks, Abbott is one of the few large caps expected to grow sales and earnings over the next several years, according to Bright Rock’s Lilly. The developer of drugs including autoimmune therapy Humira and medical devices like drug-coated stents enjoys strong patent protection and has a history of savvy acquisitions. Its shares yield a healthy 3.7 percent, and the company’s strong cash position should allow it to grow dividends at close to 10 percent a year. A presence in India and other fast growing international markets will also help.

  • Raytheon

A decline in defense spending should actually benefit Raytheon, which makes weapons such as the Tomahawk guided missiles that support the military’s goal of lower cost, remote combat. Shares have pulled back recently with the defense sector and are trading at a below market P/E of 10.

The company generates plenty of free cash flow, which it has been using to buy back stock and raise its dividend — the payout is up 11 percent annually over the last five years, and shares currently yield 3.5 percent, according to Jim Wright, CIO of Harvest Financial Partners in Paoli, Pa. A diversified product line and steady international demand should keep earnings growth steady over the next several years, Wright says.

Steady Growers

  • Freeport McMoran

Commodities can be an effective hedge against inflation, which is already a threat in the developing world and could become one here should monetary policy remain stimulative. As the world’s largest copper producer and a play on the price of gold, Freeport McMoran can provide that hedge plus an attractive upside. Williams, who likes to buy beaten-up stocks and hold them to fair value, says the miner’s takeout value is double its current share price.

Income Plays

  • Petrobras

The Brazilian oil giant currently has plenty of domestic demand to keep it busy. Over the next five years, however, it is expected to double production capacity and become a global supplier. Columbia’s Williams says shares have been hurt due to a socialist government coming into power but sees great growth ahead for both the company and Brazil as global energy demand surges.

  • Caterpillar

The global leader in construction equipment should figure prominently as developing markets build out their modern infrastructure.

"They’re tied to all the emerging market economies," says Jay Tyner, president of Semmax Financial Group in Greensboro, N.C.

China, for instance, has increased its purchase of excavation equipment 60 percent in the last year. To meet that demand, Caterpillar is expected to triple its output in China and have 27 factories based there by 2014. Wells Fargo Securities rates the stock a buy and says earnings could surprise to the upside over the next several years.

  • Comcast

Entertainment and distribution come together in media conglomerate Comcast. Analysts say its 2010 acquisition of CNBC's parent company NBC Universal positions will allow the country’s largest cable operator to benefit from consumers’ desire for more content and bandwidth.

Comcast's new cable box, which hosts programs on remote servers that can be accessed from any TV, should give the firm pricing power, says Kreps. The company is expected to grow earnings over 10 percent the next two years and pays a yield close to 2 percent.

  • TJX Companies

Consumers will always be looking for bargains and TJX, which runs the TJ Maxx and Marshalls apparel chains, fills that niche well. Williams, who has owned shares for 15 years, says the country’s largest off-price retailer has benefited from the weak U.S. economy and expects to see future growth from its overseas expansion.

TJX's European stores are currently a drag on earnings, which came in below first-quarter estimates, making now a good time to buy, according to Williams. Looking ahead, TJX is expected to see improving margins in the U.S. and better sales growth in Europe.

Your Job, Your Life - A CNBC Special Report
Your Job, Your Life - A CNBC Special Report

Income plays

In addition to common stocks, boomers should consider two other equity-like growth and income sources: Master Limited Partnerships, MLPs, and Real Estate Investment Trusts, REITs, both of which pass on all or most of their earnings to shareholders.

MLPs are exempt from corporate taxes, which mean higher income for shareholders. MLP income tends to increase over time, says Eric Ross of Sequoia Wealth Counsel in Cincinnati, who likes their tax-deferred earnings — you only pay taxes upon selling as annual income is treated as a return of capital. REITs, which own commercial real estate and/or mortgages, have outperformed U.S. stocks and bonds over the last 10 years and are a good inflation hedge.

  • El Paso Pipeline Partners

A spinoff from El Paso Corp., this pipeline operator offers a direct play on the price of oil. Its significant storage capacity allows it to hoard supplies and release them at higher prices. Ross considers shares fairly valued and notes the 5.0-percent yield is above the industry average. El Paso also benefits from moves by its parent, which continues to drop pipeline assets into the MLP.

  • Boardwalk Pipeline Partners

Boardwalk provides natural gas exposure and one of the highest yields in the industry — 7.4 percent. The firm’s pipelines are strategically positioned to reach major distribution points in the East and Midwest, which analysts call a blueprint for steady cash flow growth. About 80 percent of Boardwalk's pipeline capacity is reserved through long-term contracts, which insulates the firm from disruptions in demand.

  • Brandywine Realty Trust

This owner of office properties has been in the REIT business for 26 years and is a "consistently strong operator," says Goldberg. Brandywine focuses on high-quality properties in core markets like Washington, D.C., which have recovered the strongest from the commercial real estate slump. Income should continue to pick up as occupancy rates improve. As one of the smaller REITs in the office space, the stock could also be a potential acquisition as the industry consolidates.