A retirement portfolio shouldn’t be a set of stocks that you simply sit on while you hope they merely track the market or don’t lose you a ton of money. It doesn’t have to be a slow crawl of income and no growth, either.
No, a retirement portfolio should be chock full of top stocks that can actually deliver some outperformance over time.
After all, you don’t just want to retire — you’d like to retire well, right?
I’ve put together a 10-stock portfolio of some of my favorite long-term holdings, and it just so happens that this truly is a RETIREMENT portfolio. That’s not for emphasis. Put these 10 stocks together, and you literally spell retirement.
That part’s a gimmick, but this part isn’t: If you invested $100,000 in this exact portfolio of top stocks three years ago, it would be worth a cool $171,507 as of May 16, an annualized total return of 19.7%, $40,573 more than the S&P 500. That’s right, it more than doubled the index.
And yes, past performance isn’t an indication of future returns, but it’s a nice stat to lean on if you still believe in these stocks — which I certainly do.
Let me tell you why each of these top stocks is ready for a repeat performance.
Top Stocks for Retirement: Rollins (ROL)
The champion of pest control, Rollins, Inc. (ROL), sports revenue growth that has averaged between 5% to 5.5% over the past three years. Over the long haul, it hasn’t disappointed delivering 18 consecutive years of earnings growth and 14 consecutive years of dividend increases averaging 12%.
Rollins continues to do well thanks to a business model that generates approximately 80% recurring revenue while retaining 80% to 90% of both its commercial and residential customers.
That’s a recipe for success if I ever saw one.
On the commercial side of its business (41% of overall revenue), ROL has 20% market share in North America through its Orkin brand and others. Its residential business accounts for another 41% of its overall revenue, and the remaining 18% comes from its termite business — a $5.6 billion market that isn’t going to disappear as long as people want to sell their homes at a good price. It’s the ultimate captive audience.
Plus, there’s the growing opportunity presented by raccoons, estimated to be a niche $500 million market.
These are the hallmarks of a very stable business and a perfect fit for that retirement portfolio.
Top Stocks for Retirement: Electronic Arts (EA)
I’m not a big video game enthusiast, but there are plenty who are, and recent earnings results from Electronic Arts Inc. (EA) and others in the space suggest that the good times should continue for the foreseeable future.
EA announced its Q4 2015 and full-year results May 10. They were better than expected, with non-GAAP revenues up 5.7% for the year to $4.57 billion with $1.02 billion in non-GAAP net income, a 26% year-over-year increase.
Business is moving online. Approximately 77% of its Q4 revenue was digital, 15 percentage points higher than its digital business for 2015 in its entirety. With Leicester City having captured the Premier League soccer championship, one of the most spectacular achievements in sports history, its FIFA game should continue to see brisk sales.
With EA transforming its business model from low-user engagement to one that generates significant recurring revenue in a multi-platform business, investors should expect more than good things from EA in the years ahead.
Top Stocks for Retirement: Tractor Supply (TSCO)
Tractor Supply Company (TSCO) is one of my all-time favorite stocks, and although I don’t own it at the moment, I have in the past.
There’s nothing exceptional about Tractor Supply’s business model, though you’d be hard-pressed to find anyone who would be able to compete with it in terms of serving its target market — the recreational farmer.
TSCO has 1,500 stores in 49 states and generated $6.2 billion in revenue in 2015. This past year, it opened 114 stores with plans for approximately 120 store openings annually for the next decade. There’s still plenty of growth left for TSCO.
Long-term, it plans on delivering 3% to 5% same-store sales growth while improving operating margins by 25 basis points each year on the back of an annual investment in the neighborhood of $275 million. You constantly need to feed the engine.
The best part? Over the next four years, TSCO is expected to generate $1.6 billion in free cash flow for shareholders. Of that, it looks to pay out between 20% to 30% of its earnings in the form of a dividend, which it looks to grow by at least 15% each year, while repurchasing approximately 2% to 3% of its shares on an annual basis.
As retail businesses go, there are very few that execute as well as Tractor Supply. Perhaps that’s why its stock hasn’t had a down year since 2007.
Top Stocks for Retirement: InterContinental Hotels Group (IHG)
Whatever you do, don’t look at this hotel chain’s current stock price, which currently is around its 52-week low of $37.50.
But hotel stocks are caught in a downward spiral that’s affecting everyone, not just InterContinental Hotels Group PLC (ADR) (IHG). How bad is it? Lodging stocks are down 15.1% over the past 52 weeks compared to a decline of 1.4% for the S&P 500.
But don’t be discouraged. The hotel industry remains in very good shape, as does IHG. The company is expected to add 220,000 rooms to its network of hotels over the next few years — it opened 5,000 in Q1 2016 — and it’s still growing its revenue per available room (RevPAR), up 1.4% in the first quarter, but not nearly as robust as the 2.4% increase in the previous quarter.
It’s important to note that IHG over the past few years has transitioned from an owner/operator to strictly being an operator and franchisor. Asset sales have IHG flush with cash to grow its business, and the company returned $1.5 billion to shareholders on May 23 in the form of a special dividend. That move bodes well for the future.
With a strong presence in both the U.S. and China, IHG stock is a safe harbor.
Top Stocks for Retirement: Ross Stores (ROST)
Retail is suffering right now as consumers refuse to shop, preferring to save … but don’t tell that to Ross Stores, Inc. (ROST), which continues to pile up good results and in the process is taking business from its department store competition.
InvestorPlace contributor Josh Enomoto suggests that over the past decade, while department stores have seen their market share drop significantly when compared to ROST and its discount peer, TJX Companies Inc (TJX), the discounters have seen their market share increase by more than 50%.
Will Americans ever pull out of their shopping malaise? Who knows? But whatever happens, Ross Stores has got it covered.
Over the past 10 years, ROST has grown revenues by 114% to $11.9 billion. But what makes this truly special is that the retailer also doubled its operating margins over the past decade, from 7% in 2006 to 13.6% in 2015 — hence the 315% increase in operating income.
TJX is much bigger, but ROST has done a better job growing its business.
Top Stocks for Retirement: Equity Residential (EQR)
Equity Residential (EQR) runs a simple business — it buys, develops, and manages apartments in U.S. growth markets. If the 2008 recession did nothing else, it reminded investors that a lot of people would rather rent than own residential real estate. It doesn’t matter the reason, just that the demand won’t go away anytime soon.
According to the U.S. Census Bureau, between 2010 and 2014, almost 1 million renters were added annually to the rent rolls of landlords. That’s significant when you consider that the same annual number prior to 2010 never got higher than 500,000.
And of course, with an investment in Equity Residential, you get the leadership skills of billionaire Sam Zell, who co-founded the company in 1966 and is still chairman.
Considering that EQR sports 84,000 rental units across the U.S. that are 96% occupied and another 3,900 under development, the future looks bright.
Top Stocks for Retirement: 3M (MMM)
Ah, good old Scotch tape. An empire was built on the stuff.
But seriously, 3M Co (MMM) has its hands in a lot of pies, generating $30.3 billion in global revenue in 2015 from five different operating segments, including its consumer segment, where Scotch tape resides.
The company continues to sharpen its focus, growing its margins while reducing operating segments from six to five, and cutting the number of businesses it operates from 40 down to 26. In 2015, 3M grew operating margins by 50 basis points to 22.9%. In Q1 2016, those margins increased by 130 basis points to 24.1%. Those margins are now back to record levels set a decade ago.
While organic growth remains important to 3M, acquisitions have become a bigger part of its growth strategy. In 2015, MMM spent $3.7 billion in M&A deals.
Look for it to do bigger deals in 2017 and beyond.
Top Stocks for Retirement: EQT Midstream Partners LP (EQM)
I’m not an oil guy, but the worst seems to be over when it comes to energy prices. Sure, oil might not get back to $100 anytime soon, but the worm is starting to turn.
And that’s good news for pipeline operators such as EQT Midstream Partners LP (EQM).
Things can’t be that bad considering its former parent and sponsor, EQT Corporation (EQT), recently announced that it’s buying 62,500 acres of West Virginia Marcellus Shale land for $6,512 per acre. While many producers are keeping expenditures low given the price of oil, EQT’s spending more than $1 billion in 2016.
Long-term, oil should be a good play. Meanwhile, EQM currently yields 3.5%. Enjoy the income until things fully recover, at which time you can expect some outsize capital appreciation.
Top Stocks for Retirement: Nike (NKE)
The Cleveland Cavaliers are in the middle of a possible championship run; at the front of that charge is a very wealthy LeBron James. It’s said that James’ lifetime endorsement deal with Nike Inc (NKE) is worth more than $30 million per year, and $1 billion over his lifetime.
That’s a lot of money to pay an athlete, but remember that contracts like these don’t get signed unless Nike gets something in return. People likely thought the same thing about Michael Jordan, and that’s turned out great for all parties involved. In 2014, Nike generated $2.6 billion from Michael Jordan shoe sales in the U.S. and commanded a 58% market share in the basketball shoe category.
Will James be able to work the same magic as Jordan? That’s questionable. Estimates peg Nike revenues from LeBron James shoes at $400 million annually, a mere pittance compared to Jordan’s annual production. That said, the Beaverton, Oregon-based behemoth is still doing just fine after all its expenses (including James’ haul) are subtracted from top-line revenues.
NKE stock is down 8% for the year-to-date and is ready for the taking. Long-term, with the exception of Electronic Arts, I’d say Nike gives you your best shot for appreciation out of these 10 top retirement stocks.
Top Stocks for Retirement: Toro (TTC)
It pays to be in lawn maintenance.
Toro’s not flashy by any means, but if 2015 is any indication, it gets the job done. Its professional segment generated $308 million in net earnings in 2015 on $1.64 billion in revenue. On the residential side, net earnings totaled $85 million on revenues of $723 million. While its residential business doesn’t near the revenues or profits, it’s vital to brand awareness.
In late 2014, Toro acquired BOSS snowplows for $227 million. While consumers are used to seeing the bright red lawn mowers manufactured by Toro around country clubs, now they can see them plowing driveways in the northeast.
It’s a small move to diversify its revenue streams but one that helps balance its revenues over all four quarters.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.