A big worry for retirees isn't necessarily the size of their nest eggs, but whether they'll keep up with inflation. While conventional wisdom suggests pulling money out of stocks and putting it into bonds once you're retired, that may not prevent erosion of principal.
One great strategy to keep your nest egg growing in your golden years is to invest in top dividend stocks that also have a growth component. We asked three of our Motley Fool investors to recommend stocks in this "sweet spot" for retirees. They picked Nike (NYSE: NKE), XPO Logistics (NYSE: XPO), and Waste Management (NYSE: WM).
The best retirement portfolios keep up with the times by considering growth as a factor. Image source: Getty Images.
A proven leader
Jeremy Bowman (Nike): Retirees seeking growth should look for two things from their investments: a growing dividend and a growing stock price. Nike, the global leader in sports footwear and apparel, is in a position to supply both.
Nike has reigned supreme over the sports world for more than a generation, since the ascendance of Michael Jordan in the 1980s, and the company has consistently delivered for investors. It has a number of competitive advantages including its brand name, and sponsorships with icons like Lebron James, Cristiano Ronaldo, and Serena Williams. It has few rivals in the sportswear arena, and while it has lost ground to Adidas in recent quarters, Under Armour is faltering, eliminating what many thought would be the company's biggest threat.
The Swoosh is in the middle of a transition as it reacts to an upheaval in traditional retail channels at home, and it's shifting to a new strategy called the Consumer Direct Offense; this promises to double speed, innovation, and distribution, and the early results have been promising. Nike expects to return to growth in North America, its biggest market, later this year, and it continues to put up strong numbers abroad.
As a dividend payer, the company offers a modest yield of 1.2%, but it has raised its dividend payout every year since it initiated it in 2004, and it's increased it by 10% or more annually since the Great Recession. Nike has a modest payout ratio of 34.6%, giving the company plenty of room to continue raising its dividend, and it will likely be a Dividend Aristocrat in another decade.
For retirees, Nike offers the security, the income, and the brand strength to help grow their nest eggs over the coming years.
Profiting off the e-commerce boom
Daniel Miller (XPO Logistics): Retirees looking to grow their nest eggs need to find a stock that can ride trends for decades, and XPO Logistics is a prime candidate to capitalize on booming e-commerce trends. For those unaware, XPO Logistics is a global transportation and logistics company that has grown rapidly through numerous acquisitions. Essentially, XPO offers its clients a way to move goods quickly and cost-effectively through the supply chain.
One of the solutions that XPO provides, among its many services, is known as "last mile" (moving goods to a final destination). XPO is the largest last-mile logistics provider for heavy goods in the U.S., which is a more than $13 billion sector estimated to be growing at five to six times gross domestic product (GDP), according to management. Overall, the company sees a $1 trillion addressable opportunity in transportation and logistics, but it currently has less than 1.5% market share, so there's massive room for growth.
XPO's near-term success will revolve around two critical aspects: creating synergies and fueling innovation. After a spree of acquisitions, it's time for management to mold its business operations and create meaningful cost synergies to improve the company's bottom line. XPO also needs to keep pouring in capital to innovate new services and improve current offerings; it spends more than $450 million a year on technology, and has built up a highly scalable system to help these efforts in automation, robotics, big data, and customer service.
Ultimately, retirees looking to grow their nest eggs can rest assured that XPO is positioned to thrive in a world where e-commerce is fueling last-mile deliveries. If management can create cost synergies between its acquisitions, its bottom line should only improve.
A junk stock...in a good way
John Bromels (Waste Management): Besides taxes, one of the things you can be sure you'll still be dealing with in 10, 20, or even 50 years is trash. As the population increases, we'll create increasing amounts of waste...and that means increasing demand for a company like Waste Management, the country's largest trash hauler.
Waste Management is an excellent stock for retirees. It's a very large, very stable company with low customer churn and a predictable revenue model. Its bottom line has been growing at an annualized rate of about 10% per year, which is phenomenal for such a large company. And the market has taken notice: Waste Management's share price has increased by 55% over the last three years.
All that price appreciation has knocked the dividend yield down a bit, from more than 3% to about 2.1% today. But the company has a long history of upping its dividend. In December, Waste Management boosted its dividend by 10%, the company's 15th annual increase.
Waste Management has been growing its revenue and earnings through acquisitions as well as organic growth, and it returned $456 million to shareholders in Q1 2018 through dividends and share buybacks. This investor-friendly company is definitely not one to toss onto the garbage heap.
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Daniel Miller has no position in any of the stocks mentioned. Jeremy Bowman owns shares of Nike, UA, and XPO Logistics. John Bromels owns shares of UAA, UA, Waste Management, and XPO Logistics. The Motley Fool owns shares of and recommends Nike, UAA, and UA. The Motley Fool recommends XPO Logistics. The Motley Fool has a disclosure policy.