Your goals tend to change as you move through different stages of life, and adjusting your investing strategies to help better meet those goals is prudent. There's no perfect path to market-beating returns. But investors in their 40s will probably be best served by looking for well-run companies that offer growth at reasonable prices and returned-income components that are getting stronger and stronger.
With that in mind, here's why Activision Blizzard (NASDAQ: ATVI), Walt Disney (NYSE: DIS), and Apple (NASDAQ: AAPL) are stocks that you should consider adding to your portfolio.
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The appeal of interactive entertainment is evident in the name: It makes a user an active participant in an experience. That's a characteristic that has helped video games rise from a niche hobby to one of the world's most commercially successful media. Gaming only looks poised to become more popular going forward, and Activision Blizzard is in position to be one of the industry's biggest winners.
The video game publisher is still reaching new heights, recently setting a record with $1 billion in bookings for its March-ended quarter. Even more impressive, the company achieved that without launching a new game in the period. That's a pretty significant development and evidences the benefits of the company's transition to a games-as-a-service model.
Activision Blizzard is also benefiting from the rise of digital distribution: selling games directly to consumers and cutting out retail middlemen like GameStop. That trend is creating a favorable margins catalyst -- which looks even better in light of continued growth for sales of in-game items and other digital content.
Activision Blizzard carries weight as a brand within the gaming world. And with a wealth of top-notch development teams and hit properties like Call of Duty, Overwatch, World of Warcraft, and Candy Crush Saga, the company is in position to retain its spot as an industry leader. With that territory comes the chance to be one of the big winners in potentially high-growth markets like esports and virtual reality.
Shares trade at roughly 27 times this year's expected earnings and have a dividend yield of roughly 0.5%. Activision Blizzard is more of a growth stock, and the underlying business still has huge expansion potential, so investors shouldn't be deterred by its relatively small yield. The company only started returning cash payouts to shareholders in 2011. But it has delivered payout growth in each subsequent year and is in good shape to keep the streak alive, since the cost of distributing its current payout comes in at just 15% of trailing earnings.
Disney is a content giant that's been a leader in its industry for nearly a century. The media-networks pillar of the company's entertainment kingdom is currently under pressure, which has contributed to the stock losing roughly 6% of its value over the last three years.
But patient investors have an opportunity to purchase shares at an attractive price and reap the benefits of holding for the long haul. There's always going to be a market for great content, and Disney is a strong bet to be at the forefront of creating experiences that amaze and delight.
Disney generated roughly $10.7 billion in free cash flow (FCF) over the trailing 12-month period -- a record performance and sign of the business' resilience even amid cord-cutting pressures. The company has built an enviable synergy across its studio entertainment, parks and resorts, media networks, and merchandise segments that points to strong continued performance. While the networks segment could be an ongoing source of turbulence, the company's parks and resorts business is thriving (with sales up 13% and operating income up 24% year over year in the most recently reported quarter), and its movie business is laying the foundations for future success.
Disney films now claim nine out of the 10 biggest opening weekends ever, and account for 17 of the 34 films that have grossed over $1 billion in global ticket sales. The company has scored big hits with established franchises like the Marvel Cinematic Universe, revivals of hits properties like Beauty and the Beast and The Jungle Book, and new properties like Frozen and Zootopia. These are assets that will help it establish a winning position in the streaming space and pursue merchandising opportunities. Its proven adeptness at creating new hits suggests that the company will continue to dominate the movie biz.
Shares trade at an attractive 14.5 times forward earnings estimates and sport a roughly 1.6% dividend yield. The House of Mouse has roughly doubled its payout over the last five years, and low payout ratios at both the earnings and FCF levels suggest that shareholders can look forward to payout growth even as the company invests to grow its business.
Apple has carved out a position as the world's top premium electronics brand. While technology hardware and software are businesses prone to upheaval, Apple's high-quality hardware, software, and strength in design suggest that it can stay on top and realize the benefits.
The synergies created by the company's business model and value of courting a high-end customer base have recently been exemplified by the growth of the services segment -- iPhone users in America spent 23% more on apps in 2017 than in the previous year, and iOS users now spend nearly three times as much on their e-commerce transactions than those on Android.
Apple's most recent quarter saw it grow earnings per share 30% year over year on a 16% sales increase, and the high-margin nature of its services business played a big part in that impressive performance. Revenues for the services segment were up 30.5% compared to the prior-year period, and the unit looks to be a continued performance driver.
There's still room for expansion on the hardware side as well. Wearables had big growth in the March-ended quarter, notching a 50% sales increase. And the company's recent developer's conference shows that Apple still has innovations to serve up in the category.
Even after climbing nearly 30% over the last year, Apple shares trade at a reasonable 16.5 times forward earnings and come with a dividend yield of roughly 1.5%. The company has raised its payout for five years running -- recently delivering a 16% payout increase. And it looks like shareholders can reasonably expect more dividend growth down the line. The cost of distributing its current payout comes in at roughly a quarter of trailing earnings, indicating that Apple has plenty of room to continue boosting the returned-income component of stock ownership.
With a great brand backed by strong product offerings, a growing dividend, and a nonprohibitive valuation, Apple stock is still worth buying and holding for the long term.
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Keith Noonan owns shares of Activision Blizzard and Walt Disney. The Motley Fool owns shares of and recommends Activision Blizzard, Apple, and Walt Disney. The Motley Fool owns shares of GameStop and has the following options: long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and short July 2018 $14 calls on GameStop. The Motley Fool has a disclosure policy.