A well-constructed retirement portfolio should help preserve and grow your base of wealth so that you're free to enjoy other pursuits in your non-working years.
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To help find stocks that could help retirees meet those goals, we asked three contributing Motley Fool investors to profile a low-risk, dividend-paying company that has what it takes to deliver dependable returns and strengthen your nest egg. Read on to see why they identified Diageo (NYSE: DEO), 3M (NYSE: MMM), and McCormick (NYSE: MKC) as stocks that fit the bill.
Tapping into a rich trend
Rich Duprey (Diageo): Like a bartender mixing up the perfect drink, distiller Diageo has concocted what could be considered a perfect portfolio of high-end beers, wine, and spirits that account for two-thirds of its net sales, including Guinness beer, Ciroc vodka, Don Julio tequila, and Bulleit bourbon. Recently, it also bought premium tequila brand Casamigos from actor George Clooney for $700 million, and while that might not have been the most pragmatic choice, it shows Diageo sees the trend toward premiumization continuing well into the future.
As we saw in its fiscal 2017 full-year results, Diageo is still in a significant upswing. For the period, it posted higher-than-expected earnings, and sales rose 15%, ahead of Wall Street's expectations.
While a lot of time is spent looking at how the business is going in the U.S., emerging markets will play an increasingly important role in the future. For example, Diageo owns a 55% stake in Indian distiller United Spirits, giving it control of the biggest distiller in the world's largest whisky market, where its people consume around 200 million cases of whisky annually, or about half of the world's consumption. The Asia Pacific region of which India is the largest component, accounting for 40%, or twice as much as North America, though only 20% of total sales.
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A stock that retirees are considering should be able to grow well into the future and possess a bulletproof brand impervious to competitive challenges. Diageo's portfolio of brands offers that shield while giving the distiller the chance to grow worldwide. And with a dividend yield of 3.1%, Diageo makes a good fit in a retiree's own portfolio.
Stick with this iconic innovator
Dan Caplinger (3M): Retirees appreciate conservative stocks that still take advantage of growth opportunities to produce strong long-term results. 3M has been highly successful in using its innovative spirit to come up with new products in a wide range of industries, ranging from the Post-It line of office products to high-end materials for use in the solar energy, healthcare, and industrial fields. By concentrating largely on the materials that manufacturer clients use to make advances in their own fields, 3M is able to stay ahead of the curve while not being vulnerable to trends that turn out to be passing fads.
3M has been able to return its growing profits to shareholders through dividends, and the conglomerate has one of the most impressive track records of dividend growth in the market. If the company makes a dividend increase on schedule next February -- and there's every reason to believe it will -- then 2018 will mark the 60th straight year in which 3M has boosted its dividend. With a current yield of 2.3%, 3M doesn't have a dangerously high yield, but it pays more than the market average, and that's icing on the cake for conservative shareholders who want a solid blue-chip business with a dollop of portfolio income for their living expenses.
A safe way to spice up your portfolio
Keith Noonan (McCormick): Spice-giant McCormick might not look cheap trading at roughly 24 times forward earnings estimates, but with its demonstrated competitive resilience and dedication to returning value to shareholders, it fits the "great company at a fair price" mold.
The company is nearly four times the size of its largest global competitor, has roughly 40% market share in the domestic spices and seasonings category, and is backed by brand strength that should help it continue leveraging pricing power. With sales growing at a solid clip and the company implementing cost-saving initiatives, McCormick appears primed to deliver reliable earnings growth down the line.
Turning to the dividend, McCormick's yield isn't huge at roughly 1.9%, but investors who buy the stock today can be reasonably confident that their shares will have a bigger yield 12 months from now. The company has raised its annual payout for 31 years running and is on track to continue adding to that impressive streak. With the cost of distributing its dividend representing 45% of trailing earnings and 53% of free cash flow, McCormick is already in good shape to deliver substantial payout growth, and earnings momentum should create more room down the line.
In operation since 1889, McCormick has has proven that it can stand the test of time, and a sturdy business and reliable income generation make it a great stock retirement for portfolios.
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Dan Caplinger has no position in any of the stocks mentioned. Keith Noonan has no position in any of the stocks mentioned. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool recommends 3M, Diageo, and McCormick. The Motley Fool has a disclosure policy.