If you fall into the broad demographic of baby boomer, you are likely in or nearing retirement. Ensuring a steady stream of income while possessing an element of growth is one path to ensuring you have the funds to enjoy those golden years. Finding the best stocks to achieve these goals can be a daunting task.
With that in mind, we asked three Motley Fool investors to choose companies they believed would help baby boomers reach their goals. They offered convincing arguments for Magellan Midstream Partners, L.P. (NYSE:MMP), General Motors Company (NYSE:GM), and Amazon.com, Inc. (NASDAQ:AMZN).
Building an income stream
Reuben Gregg Brewer (Magellan Midstream Partners, L.P.): Baby boomers looking to the future are probably starting to think about income as a key financial goal. There are two components here, though. The most obvious is finding an investment that offers a sizable yield. The other, perhaps more important, is ensuring that there's enough growth in that income stream to offset the ravages of inflation. Midstream oil and gas player Magellan Midstream Partners holds up on both counts.
Magellan's distribution yield is a robust 5.4%, more than twice what you could get with an S&P 500 Index fund. The disbursement has been increased every quarter since the partnership's IPO in 2001, an 18-year run of hikes. Over the past decade, the average annualized increase was roughly 10%, roughly three times the historical rate of inflation growth. The current goal is for an 8% increase in 2018 backed by growth spending of $800 million. The projects Magellan is funding, meanwhile, either have customers lined up or are at assets where demand has proven a need for expansion.
All of that income and income growth, meanwhile, is backed by one of the most conservative companies in the midstream industry. To put a number on that, Magellan's debt-to-EBITDA ratio of 3.3 times is well below that of industry bellwethers like Enterprise Products Partners L.P. and Kinder Morgan Inc, which have ratios of 4.7 and 6.5, respectively. Magellan has also made judicious use of unit sales, which dilute current unitholders, opting instead to self-fund much of its capital spending. If you're looking for a healthy mix of income and income growth, Magellan should be on your short list.
The total package
Tim Green (General Motors): Whatever goal you may have, a high-yield dividend stock trading at a beaten-down valuation with plenty of long-term growth potential will help you achieve it. General Motors checks all three boxes.
On the dividend front, GM stock offers a yield of 3.65%, more than double the paltry yield of the S&P 500. And despite the yield being so high, GM's dividend is perfectly sustainable. Based on 2017 adjusted numbers, the dividend accounted for just 23% of earnings last year. It would take a disaster to threaten GM's dividend.
If a high-yield dividend isn't enough, consider this: GM stock trades for just 6.3 times adjusted earnings. To be fair, the bottom line will decline if demand for vehicles slumps more than the company is expecting. But the "M" in GM might as well stand for margin of safety.
Looking into the future, GM isn't standing still as the Teslas and Ubers of the world disrupt the industry. The Chevy Bolt was the second best selling all-electric vehicle in the U.S. last year, and GM is planning to launch at least 20 new electric vehicles by 2023. A self-driving version of the Bolt will form the foundation of GM's planned robo-taxi service, which the company hopes to launch in dense urban environments sometime next year. GM won't be disrupted without putting up a fight.
GM is a value stock, a dividend stock, and potentially a growth stock if its investments in electric and self-driving vehicles pay off. No matter what lens you choose to view the company through, it should be a part of your portfolio.
This company is trending
Danny Vena (Amazon): One way to ensure growth is to find a well-run company that is at the forefront of the biggest and broadest societal trend you can find -- and invest in it. That trend is e-commerce, and that company is Amazon. According to the U.S. Census Bureau, online sales account for just 8.4% of total retail sales, but the trend is undeniable, growing from just 3.5% in early 2008.
Amazon is the 800-pound gorilla in the room when it comes to e-commerce, having achieved the distinction as the largest online seller worldwide. It doesn't stop there. Amazon garnered an estimated 44% of all e-commerce sales in the U.S. in 2017, and an astounding 4% of all retail sales in the country, according to a report by e-commerce analytics provider One Click Retail. That amounted to an estimated $200 billion in sales last year.
There are other trends that favor the online retailer as well. Amazon was an early entrant into the growing field of artificial intelligence. The company has used the technology to improve its search results, for inventory forecasting and management, and to provide product recommendations. Its AI-infused, voice-activated Echo smart speaker also has a commanding lead in the space, with an estimated 75% share of the market it created.
Cloud computing is another area where the company dominates. Amazon Web Services (AWS) is the undisputed leader, controlling an estimated 40% market share, and it's the company's fastest-growing and most profitable business. In 2017, AWS generated revenue of $17.5 billion, an increase of 43% over the prior year. Operating income jumped 39% year over year. Cloud computing has grown to represent 10% of the company's revenue and all of its operating income for last year.
These trends will likely keep Amazon growing for years to come and help baby boomers -- or any investor, for that matter -- achieve their goals.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Amazon, Kinder Morgan, and Tesla. Reuben Gregg Brewer has no position in any of the stocks mentioned. Timothy Green owns shares of General Motors. The Motley Fool owns shares of and recommends Amazon, Kinder Morgan, and Tesla. The Motley Fool recommends Enterprise Products Partners and Magellan Midstream Partners. The Motley Fool has a disclosure policy.