Consumer Discretionary Stocks for Retirement Investors

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While consumer staples stocks — the purveyors of goods like shampoo, ketchup and toilet paper — have long been “staples” of retirement investors’ portfolios, their flashier and sexier discretionary sisters have not. The general perception is that consumer discretionary stocks are riskier. Perhaps that’s based on the how fickle consumers can be, or how “wants” often fall by the wayside during economic downturns. The sector’s perception of no dividends probably doesn’t hurt, either.

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However, retirement investors may want to give consumer discretionary stocks a good home in their portfolios.

For the most part, many of these companies have matured into stable, multi-national businesses, almost immune to how consumers can be. That fact has made many stocks in the sector cash flow and dividend kings. Meanwhile, international and emerging market expansions by some of the biggest discretionary names is helping with something retirement investors still need a lot of — growth.

All in all, consumer discretionary stocks offer a great blend of total return.

But, how do you get your dose of these firms? Here’s one consumer discretionary stock, one exchange-traded fund (ETF) and one mutual fund to buy today.

Consumer Discretionary Stocks: One Stock — Starbucks Corporation (SBUX)

Starbucks stock SBUX covered calls

Comedian Lewis Black once made at joke about the end of the universe being a Starbucks Corporation (NASDAQ:SBUX) across the street from a Starbucks. However, the truth is the peddler of lattes, scones and tea has become a major part of the American — and now the world’s — lexicon. It’s the ultimate staples name disguised as a discretionary stock.

And, as the biggest coffee chain, SBUX throws off a lot of cash — enough to have begun paying a dividend back in 2010. More importantly for retirement investors, that quarterly dividend has grown from just 10 cents per share to 32 cents per share.

But, SBUX isn’t just a boring dividend payer. It has a huge amount of growth behind it.

That’s because the firm has largely implemented the use of technology in its operations and how it engages with consumers. Likewise, food sales and loyalty rewards programs continue to drive revenue and profits for the coffee chain. Ultimately, growth at SBUX should continue for a long time.

Shares of SBUX trade at forward P/E of 24. Not dirt cheap, but considering its blend of growth and cash flow generation, that price could be worth pulling the trigger.

Consumer Discretionary Stocks: One ETF — Vanguard Consumer Discretionary ETF (VCR)

vanguard

The power of indexing shouldn’t be lost on retirement investors. And, when it comes to consumer discretionary stocks, they have a powerful friend in Vanguard. The Vanguard Consumer Discretionary ETF (NYSEARCA:VCR) is great choice.

Cute ticker aside, VCR tracks the MSCI U.S. Investable Market Consumer Discretionary 25/50 Index. This provides access to the full gamut of discretionary names, covering everything from automotive, apparel and leisure equipment to hotels, restaurants and retailers. Currently, the $1.6 billion fund holds 381 different discretionary stocks.

But, don’t let that broad focus fool you; VCR has been a great performer.

The ETF has managed to produce a 9.0% average annual return over the last 10 years. That’s bested the broad market. And, while VCR’s headline dividend yield of 1.34% isn’t super high, it has steadily grown along with the ETFs share price. Also helping on the returns front is Vanguard’s continued commitment to low costs. The asset manager recently lowered the expenses ratios on all of its sector ETFs. From now on, VCR only costs 0.12%, or just $12 annually per $10,000.

Consumer Discretionary Stocks: One Mutual Fund — Fidelity Select Retailing Portfolio (FSRPX)

Fidelity mutual funds

For retirement investors looking for an actively managed mutual fund for their consumer discretionary stocks, look no further than the Morningstar five-star rated Fidelity Select Retailing Portfolio (FSRPX). FSRPX proves that there are riches in niches.

The fund — which has seen multiple managers during its lifetime, including Fidelity Vice President William Danoff — bets on the retailing sub-sector of the discretionary market. While traditional brick-and-mortar stocks are included in FSRPX’s mix, the mutual fund does have a few surprises. Those include international retailing names, as well as online/Internet retailers as well. Top Internet retailing giants Amazon.com, Inc. (NASDAQ:AMZN) and Priceline Group Inc (NASDAQ:PCLN) are two of the fund’s biggest holdings.

That ability to hold faster-moving Internet firms, as well as more traditional retailers, has helped the consumer discretionary stock fund produce a 13.65% average total return over the last 10 years.

And, as a Fidelity fund, FSRPX is relatively low-cost to own. Expenses for the mutual fund come in at 0.83%, or $83 per $10,000 invested. FSRPX has a minimum investment of $3,000.

Disclosure: The Author has an unhealthy obsession with Starbucks iced coffee and is long SBUX shares.

Aaron Levitt is an investment journalist living in Ohio. With nearly two decades of experience, his work appears in several high-profile publications in both print and on the web. Also likes a good Reuben sandwich. Follow his picks and pans on Twitter at @AaronLevitt.


Article printed from InvestorPlace Media, https://investorplace.com/2015/03/consumer-discretionary-stocks-retirement-sbux-vcr-fsrpx/.

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