5 Stocks To Consider Upon Retirement

Into Retirement You Go, Savvy Investment Practice You’ll Know, Diversify Portfolio, And Watch Those Dividends Grow!

5 Stocks To Consider

When it comes to deciding what your retirement investment portfolio will look like, the two D’s reign supreme: diversity and dividend-growth.

The former ensures flexibility and security in the face of volatile global markets, while the latter ensures long-term gains.

Read on for five investments that you should consider for ensuring happy days in the sun.

The high five!

Five is a great number.

We’ve got (most of us) five fingers on each hand; the classical family unit consists of around five people, and religious texts seem to have an affinity with having five sections.

So in this spirit, this investment portfolio is made of five robust and respected investment options.

The stocks you should definitely consider are General Motors, Target, Pfizer, Edison International, and Phillip Morris.

With these five, you’ll have your investor fingers in five lucrative and secure industry pies, as illustrated by the following pie chart:

The great thing about these industries is that they don’t tend to experience growth or decline in performance at the same time as each other as they are as independent from one another as industries of their size can be.

In practice, this diversification means that you can take those profits from the out performers and use them to reinforce your holdings in the sluggish sector.

Thus, you are sheltered from the impacts of each industry’s performance, while gaining from their cumulative strength in the long run.

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Diversification is great; dividend growth is better

All these five companies have a tradition of paying dividends and increasing those dividends over time, in effect rewarding loyalty for holding stock. With an average yield of 3.5% each and no long-term business worries in sight, these are what most would call a sure thing.

The following graph demonstrates this:

General Motors is the strongest performer, and also has one of the lowest price-to-earnings ratios, effectively representing the best value for money on offer.

This is partly thanks to its stock falling in price to the $30 it is at now (see graph below).

Although its stock has fallen, there is absolutely no reason to fear for its long-term performance.

Revenue grew 4.3% last year, and its cash growth was a whopping 19% the same year.

One of the ways General Motors allows itself to pay high dividends is by repurchasing stock in itself, which in turn means less outstanding shares and so less stock and investors to pay dividends on and to.

Target, another of our stocks in focus, does the same thing.

Last year it announced it would be buying 25% of the currently outstanding shares for a total of $10 billion.

This allowed it to boost dividends by 7.7% last year, and a similar amount this year, according to a recent announcement.

This will be the 49^th consecutive year of dividend increases for Target.

49 years of constant dividend increase should tell you all you need to know about the long-term viability of this investment.

All other stocks in focus have good track records of increasing dividends to reward shareholders.

Price to Earnings Ratio

As we can see, GM’s PE ratio is absurdly low.

Pfizer’s is the highest on our list and the only one with a ratio higher than the S&P 500 average (24).

Regardless, these five represent a great value for money package.

Even Pfizer’s higher than average ratio is understandable when you consider its business is pharmaceuticals, an industry growing each year hugely. Future profits and dividend growth are virtually guaranteed.

Its earnings-per-share has also grown gradually recently, while GM’s has ballooned:

Even Phillip Morris, a company in a supposedly declining industry, has a high PE ratio.

While fewer people are smoking in the West, Phillip Morris has made an effort to isolate itself from any drastic effects on long-term viability, by investing in things like e-cigarettes.

Markets with growing middle-classes, which are bucking the trend of less smoking seen in the West are also providing a buffer against falling revenues.

Phillip Morris, like General Motors and Target, buys stock in itself as a way to ensure dividend growth.

From 2012 to 2015 it purchased $12.7 billion worth of stock.

And, with a $7.8 billion cash flow, its $1.6 billion dividend requirements were comfortable covered, with plenty scope to increase growth in the future.

Recession and Recovery

As the graphic above shows, these stocks bounced back solidly after the initial plunges they and everyone else experienced due to the 2008 financial crash.

Not only did they recover quickly, but their growth has been very well sustained since then.

Many investors might have panicked and sold so as not to lose further, but those that stuck to their guns were rewarded with more stock, higher dividends and more capital gains.

Were another crisis to arise in the next few years, one could expect the same robust bounce back.

Final Word

General Motors name is synonymous with quality and the American auto industry.

Target is world-famous for its embodiment of the discount superstore.

Pfizer is a firmly entrenched big pharma player, an industry that will grow in importance in the decades to come, as markets become more accessible, and healthcare expenditure increases throughout the globe.

Edison International’s brand name exudes reliability and commands respect.

Phillip Morris, while less, might be buying its primary consumer, has demonstrated a refusal to accept its fate by diversifying its investment portfolio.

With these combined stocks, you will set yourself up for a fantastically secure and remunerative investment portfolio.

Of course, this will require patience and the need to tolerate bad times.

You will need to stay the course when everyone around you is shouting ‘sell’, and keeping an eye on your portfolio will become a necessity.

Of course, one should diversify further and not simply rely on a retirement portfolio such as the ones outlined in this piece.

Bonds and high-risk investment strategies could also be worth looking into, but both are more difficult and require more effort and attention.