Articles on retirement investments often focus on dividend stocks, and rightfully so; reliable dividend payers can help to provide a steady stream of income for retirees. But many retired investors often overlook excellent businesses with dividend yields that are currently lower than that of the market as a whole, as measured by a broad index such as the S&P 500.
That can be a mistake, for these businesses can often reinvest their earnings at high rates of return, which can help to generate a higher total return for shareholders. And thanks to their strong long-term growth prospects, these companies can help to fund what will likely be a multi-decade retirement for many investors.
It's in this spirit that I urge investors to consider the following outstanding -- albeit lower-yielding -- dividend stocks for their retirement portfolios.
The coffee king
Few companies exist in the world today that are as dominant within their industries as Starbucks ( SBUX -0.16% ). Yet the bears will have you believe that Starbucks' days of caffeine-charged gains are long behind it, or that its current 1.5% dividend yield is too paltry to be adequate for a retiree. More astute investors, however, can see that the coffee titan still has tremendous opportunities for revenue, profit, and dividend growth from this point forward.
Helping to fuel this growth is Starbucks' China business, where the company plans to more than double its store count to 5,000 by 2021. Starbucks expects to open approximately 500 new cafes annually for the next five years in China, as the coffee titan steadily expands its reach in the world's most populous nation. Yet investors should note that it's not just unit-count expansion that's driving Starbucks' growth in the region; the company's comparable-store sales growth in China is some of the strongest in all of its operating areas, with comps rising 7% in the third quarter.
Starbucks is also becoming more profitable as it grows, as evidenced by its record operating margin of 19.8% in its most recent quarter, a 30-basis-point increase over the prior-year period. This trend should continue as Starbucks leverages its costs over its expanding store base in the years ahead.
That's particularly important to retirees, as a business can sustainably increase its dividend payout to investors only if those payments are supported by steadily rising sales and profits. Fortunately, Starbucks excels in that regard.
With exciting opportunities in massive markets such as tea and packaged goods, as well as additional growth catalysts in prepared foods, I believe that Starbucks is poised to deliver strong total returns to it shareholders for many years to come. As such, retirees may wish to consider buying shares today.
The payments titan
As the largest credit card payment network, Visa ( V -0.99% ) is well positioned to profit from the massive global shift toward electronic payments and away from cash transactions. With more than 2.5 billion Visa cards in use, a platform that processes more than 100 billion transactions annually, and operations that span more than 200 countries and territories, Visa's tremendous scale and network effects make it unlikely to be displaced by competitors. Along with its trusted brand, these powerful competitive advantages combine to form a wide protective moat around Visa's ever-rising profits.
While Visa's dividend yield currently checks in at 0.8%, the company is committed to passing on a steadily increasing portion of its earnings to its shareholders, as evidenced by its rapidly growing dividend payments.
And those profits are being boosted by the company's recently announced acquisition of Visa Europe. The deal is helping Visa better target the European market, where more than $3 trillion in personal consumption expenditure is still done via cash or check.
Additionally, the challenging yet massive $6.7 trillion Chinese market recently opened to U.S. payment processors, providing yet another huge long-term growth opportunity for Visa.
All told, with its position as the leading global electronic payment network and strong international growth prospects, Visa is set to deliver many years of dividend growth and capital appreciation to its shareholders. In that regard, it could make for an excellent addition to a retired investor's diversified stock portfolio.