Fool Blog: Stocks We'd Recommend to Our Grandmas

In this crazy market, what stocks would you recommend for your own grandmother?

That was the topic of discussion around Fool HQ the other day, and a few analysts, editors, and writers put down the stocks they deem Granny-appropriate. Let's take a look at the results.

Brian: I'd go with Johnson & Johnson (NYSE: JNJ) -- a behemoth in the health-care industry. With a near-$200 billion market cap, J&J is a safe -- stodgy, even -- stock that is quite appropriate for a retiree. There's a lot to like about this company, but I'll boil it down to three things:

1. Industry tailwinds. Health care will be one of the stories of the next 25 to 50 years, and Johnson & Johnson is in position to take advantage. It has a foothold in consumer-facing products we're all familiar with -- Band-Aids, Aveeno, Visine, Listerine -- but also in pharmaceuticals and medical equipment. All told, the company has grown sales for 75 years in a row, and it has been able to keep R&D strong.
2. Income. Granny needs cash from her portfolio, and J&J gets the job done in that department. Its 2.6% yield might not be as fetching as the 8.4% yield Windstream (NYSE: WIN) shareholders are getting, but the company has increased its dividend for 46 consecutive years.
3. Safety. J&J's beta -- 0.36 -- is docile, so Granny needn't worry when she checks the morning paper. As a multibillion-dollar conglomerate, J&J isn't likely to move with the daily winds; it's also not solely tied to one economy. In the year ended Dec. 30, just less than half the company's revenues came from outside the United States -- a trend that has been growing in recent years.

Todd: If Granny needs a high-yielding dividend stock to supplement her income, you have to consider Pfizer (NYSE: PFE). Its 6.6% dividend yield provides 73% more annual income than she'd get with a 10-year Treasury, and with less federal tax, too.

Additionally, the dividend is well covered at less than 60% free cash flow, and Pfizer's financials are impeccable -- it's one of only nine publicly traded companies to have a AAA-debt rating; others that have a AAA-debt rating include Exxon (NYSE: XOM) and General Electric (NYSE: GE). Management has also boosted the dividend in each of the last 41 years, so there's a pretty good chance that Pfizer's annual income payout will keep up with, or ideally stay ahead of, inflation. Sure, there are some risks here, including uncertainty surrounding the expiration of Lipitor's patent and government health-care reform, but I think those concerns are already reflected in the stock price.

Joe: While I'm tempted to go with an MLP that I purchased several years ago for my grandmother (Gongie, as we call her), Kinder Morgan Energy Partners (NYSE: KMP), I'll instead make the pitch for something with a bit more kick: Diageo (NYSE: DEO). The world's largest purveyor of spirits, Diageo leverages its formidable stable of lasting brands (Johnnie Walker, Smirnoff, and Guinness among them) to support fat dividend payments and share repurchases. Currently boasting a 3.6% yield, Diageo has bought back about $10 billion of its own shares over the past five years. Nothing pint-sized about that.

Diageo has a relatively aggressive balance sheet for a Gongie-esque stock, and there are legit concerns over its ability to grow its top line. Still, the company's consistent operating profit covers its interest payments more than five times over, and I believe low-single-digit growth is already more than priced into the shares. A steady, globally diversified brand powerhouse with a proven commitment to returning cash to shareholders? Yeah, I'll drink to that.

Copyright © 2008 Universal Press Syndicate