This year has served as an unpleasant reminder that the stock market doesn’t go up in a straight line. Since the beginning of the year, the referent S&P 500 and focused on growth Nasdaq Composite have fallen into a bear market with maximum drops of more than 20%. For starters, the US economy has seen consecutive declines in gross domestic product on the heels of historically high inflation.
In other words, it’s a worrying time for investors, and especially retirees who can’t afford to lose their primary investment.
But when trouble lurks on Wall Street, historically, so does opportunity. This is because all major stock market corrections have eventually been wiped out by a bull market rally. This means that despite increased short-term volatility, it is the perfect time for older investors to jump in.
What follows are three high-yield dividend stocks ideal for retirees that have the potential to turn an initial investment of $350,000 into $1 million by 2030.
Walgreens Boots Alliance: 5.62% yield
The perfect first high-yield dividend stock that can deliver a 186% return for older investors by 2030 is the drugstore chain Walgreens boot alliance (NASDAQ: AMB). Walgreens has been paying consecutive dividends for more than 89 years and has increased its base annual payment for the last 47 years.
What typically makes health care stocks such a great investment is their defensive nature. No matter how poorly the US economy or stock market performs, there will always be a demand for prescription drugs, medical devices, and health care services.
However, the COVID-19 pandemic turned out to be one of the few exceptions to this rule, at least for Walgreens Boots Alliance. Because Walgreens relies on foot traffic in its stores, closures associated with the pandemic have affected its sales and bottom line. Like other retailers, it is also facing historically high inflation and the negative effect it can have on consumer spending.
And yet, there are plenty of reasons to be excited about Walgreens’ prospects as it enacts a multi-point turnaround strategy designed to boost its operating margins, organic growth rate and customer loyalty.
For starters, management noted at the end of fiscal 2021 (the company’s fiscal year ends August 31) that it had exceeded $2 billion in annual cost savings a full year ahead of schedule. But it’s not the company’s cost-cutting that’s going to turn heads. It’s where management aggressively pulls the levers.
One area where Walgreens Boots Alliance spares no expense is in its various digitization initiatives. Although the company will continue to generate most of its revenue from its physical stores, the pandemic has shown the value of having a more prominent online presence. Walgreens has invested heavily in its direct-to-consumer platform, which should lead to healthy organic sales growth.
Additionally, Walgreens Boots Alliance partnered with (and became a majority investor in) VillageMD. The duo has opened 120 co-located full-service health clinics, as of May 31, 2022, with a goal of opening 1,000 clinics in more than 30 U.S. markets by the end of 2027. Offering staffed clinics doctor sets Walgreens clinics apart from their competition and should drive repeat business.
Valued at roughly seven times Wall Street’s forecast earnings for 2023, Walgreens has a safe floor to go along with its promising upside potential and rock-solid 5.6% return.
Innovative Industrial Properties: 7.04% yield
A second ideal high-yield income stock that has the ability to turn a $350,000 investment into $1 million over the next eight years is the cannabis-focused real estate investment trust (REIT). . Innovative Industrial Properties (NYSE: IIPR). Over the last five years, IIP, as innovative industrial properties are more commonly known, has increased its quarterly payment by 1,100%.
Just 20 months ago, marijuana stocks were all the rage on Wall Street. With Democrats taking tight control of Congress and Joe Biden winning the presidency, the expectation was for sweeping federal cannabis reforms. Unfortunately, no reforms have materialized, and marijuana stocks have suffered as a result.
However, individual states retain the right to legalize and regulate marijuana. About three-quarters of all states have given medical cannabis the green light, providing more than enough opportunities for a company like IIP to turn a profit.
Innovative Industrial Properties’ business model is like any other REIT… except for the focus on cannabis. As of early September, IIP had purchased 111 medical marijuana cultivation and processing facilities encompassing 8.7 million square feet of rentable space in 19 states. While acquisitions are IIP’s main source of growth, it has a modest organic growth component built in that allows inflationary rent increases to be passed through to its tenants each year.
What makes REITs so valuable to retirees is the predictability of their operating cash flow and dividends. At the end of June, 99% of IIP rents were being collected on time. Meanwhile, REITs are required to pay out most of their earnings as dividends, allowing them to avoid normal corporate income tax rates.
Another great catalyst for IIP is the lack of cannabis reforms at the federal level. Innovative Industrial Properties has benefited greatly from its sell-leaseback program, which involves purchasing facilities from multi-state operators for cash and immediately leasing them back to the seller. Because access to basic financial services is limited for cannabis businesses, IIP has turned this lack of reform on Capitol Hill into a positive catalyst that bolsters its long-term rental portfolio.
Intel: 4.96% performance
The third ideal high-yielding retiree stock that can turn $350,000 into $1 million by 2030 is the semiconductor giant. Intel (NASDAQ: INTC). Intel’s roughly 5% return is the juiciest payoff its shareholders have ever received.
Like most cyclical stocks, Intel is taking it head-on right now. A combination of economic weakness, high inflation and employees returning to the office has dampened personal computer (PC) sales and data center spending, at least temporarily. Start up, advanced micro devices has been undermining Intel’s server and mobile central processing unit (CPU) market share.
While this would appear to be a less than ideal scenario for Intel, a deeper dive points to an economic cash flow behemoth that has multiple catalysts on the horizon.
First, concerns about Intel losing market share appear to be an overreaction. According to second-quarter market share data from Mercury Research, Intel maintains a market share of desktop PCs, mobile devices and servers in the range of 75% to 86%. Even if AMD were to continue to slowly chip away at Intel’s PCU market share, the huge growth potential of mobile devices and data center servers should allow Intel to steadily increase sales and generate abundant cash flow.
Intel is also one of the main beneficiaries of the CHIPS and Science Act, which President Joe Biden signed into law last month. The CHIPS Act will provide $52.7 billion in subsidies to chip designers and manufacturers, with the goal of boosting chip production, innovation, and sourcing within the United States. Intel, which is spending $20 billion to build two manufacturing plants in Ohio, could eventually grow its footprint to eight factories total with federal help.
Sometime soon, we should also see the spin-off and initial public offering (IPO) of autonomous vehicle startup Mobileye, which Intel acquired in 2017 for $15.3 billion. Mobileye achieved 41% year-over-year sales growth in the most recent quarter, with annual revenue run rate of $1.84 billion. The expectation is that Mobileye will get a $30 billion valuation for its initial public offering. In short, Intel seems to have made a smart acquisition.
Despite short-term headwinds, Intel has the catalysts to nearly triple retirees’ initial investment by the end of the decade.
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Sean Williams has positions with Innovative Industrial Properties, Intel and Walgreens Boots Alliance. The Motley Fool has positions and recommends Advanced Micro Devices, Innovative Industrial Properties, and Intel. The Motley Fool recommends the following options: January 2023 Long Calls $57.50 at Intel and January 2023 Short Options $57.50 at Intel. The Motley Fool has a disclosure policy.