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Investors in retirement typically gravitate toward solid companies producing consistent returns over the years. You don't want to be selling your stocks at temporarily depressed prices to finance your income retirement needs, so soundness is of utmost importance for retired investors. In that spirit, companies such as Colgate-Palmolive (CL 1.38%), Nike (NKE -0.36%), and Berkshire Hathaway (BRK.A 0.99%) (BRK.B 0.91%) are top candidates for investors in their golden years.
This dividend stock can put a smile on your face
Colgate-Palmolive has a considerable presence in different consumer-related industries. The company manufactures shampoos, shower gels, deodorants, shaving products, and pet food, among other items. Nevertheless, nearly 46% of revenue comes from the oral care business, where Colgate-Palmolive is a global market leader.
The company was founded in 1806, it employs more than 38,000 people worldwide, and it has operations in 223 countries. Colgate-Palmolive makes nearly 80% of sales from international markets, and more than 50% of revenue comes from emerging countries.
Broad international exposure makes the business vulnerable to the impact of global currency fluctuations in the short term, but it also offers exceptional opportunities for growth due to a rising middle class and increasing consumer demand in emerging markets over the long term.
According to management, Colgate-Palmolive is the leading player in both toothpaste and toothbrushes internationally, the company has a global market share of 43.8% and 33.5% in those industries, respectively. Brand recognition provides pricing power, and management is keeping costs under control via productivity, which is allowing Colgate-Palmolive to produce consistently expanding gross profit margins over the years.
Image source: Colgate-Palmolive.
The company has a pristine track record of dividend payments, Colgate-Palmolive has paid uninterrupted dividends since 1895, proving that the business is strong enough to generate dependable cash flows in all kinds of scenarios. Even better, Colgate-Palmolive has increased dividends the last 54 years in a row, and the stock is paying a dividend yield of 2.1% at current prices.
A heavyweight champion
When analyzing a company and its long-term prospects, competitive strength is arguably the most important consideration to keep in mind. You want to have as much confidence as possible in the company's ability to keep the competition at bay and continue rewarding investors with growing sales and earnings over the years.
Nike comes second to none in its industry. The company has invested massive amounts of money in sponsoring the most popular world athletes across multiple sports disciplines, and it would be almost impossible for smaller competitors to replicate this level of brand presence.
Total revenue during the year ended on May 31 amounted to $32.5 billion, and this gargantuan scale provides an additional layer of competitive protection to the business. Because of its tremendous size, Nike gets to negotiate conveniently low prices and payment conditions with suppliers. In addition, Nike benefits from a strong negotiating position with retailers all over the world. Customers typically choose one retailer or another based on their product offerings, so retailers need to have the right merchandise from a powerful brand like Nike in order to protect their competitive position.
The company is delivering vigorous growth rates for a business that big. Total revenue grew 12% in constant-currency terms last year, while earnings per share jumped by 17% year over year. China is looking like a particularly promising market for Nike: Constant-currency sales in the Greater China region increased 27% during fiscal year 2016.
A top-quality company to hold forever
Warren Buffett is one of the most successful investors ever alive, and he has most of his own personal capital invested in Berkshire Hathaway stock. Warren Buffett's investing holding is a collection of businesses selected on the basis of their long-term fundamental quality, and Buffett is planning to hold on to these companies over years, and even decades. In his own words: "When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever."
Berkshire Hathaway operates in a wide variety of economic sectors, including insurance and reinsurance, financial services, transportation, energy, utilities, manufacturing, services, and consumer products, among others. When one sector of the economy is lagging, this can be compensated with better performance in other industries, so diversification across different sectors provides stability to Berkshire Hathaway as a whole.
Berkshire Hathaway has delivered extraordinary returns for investors over the last 50 years. From 1965 to 2015, the market value of Berkshire Hathaway stock has increased at an average compounded annual rate of 20.8%, more than doubling the 9.7% annual return produced by the S&P 500 index in the same period.
Berkshire Hathaway is now a gigantic business with a market capitalization value of over $355 billion. This means returns will most probably level down in the future, as growth tends to slow down with size. However, even if Berkshire Hathaway stock will not repeat in the coming five decades the outsized gains it has produced over the last 50 years, chances are that returns will more than compensate investors for the risk assumed.
Investment decisions are ultimately about balancing risk and potential rewards. Big and established companies such as Colgate-Palmolive, Nike, and Berkshire Hathaway are unlikely to deliver explosive gains over a short period of time. However, they have what it takes to continue producing consistent returns over the years, so they are world-class investment alternatives for investors in retirement to consider buying.
