If you're anything like me, when you hit your 40s, you began to worry about financial stressors like your kids' college accounts, saving for family vacations, and a 30-year mortgage that was still closer to the beginning than the end. Of course, looming over all of these responsibilities was a retirement that suddenly seemed a little more real than it ever had before.
In your 40s, you're too old to be wildly speculative with all of your investments, but still too young to not need a portfolio filled with stocks that will fuel your returns with solid growth. With that in mind, here are three companies that play on larger trends and seem poised to grow their top and bottom lines for years to come. While these stocks' dividend yields might not be that high now, these companies have the potential to keep hiking their payouts at decent clips in the years ahead.
Let's take a closer look at Corning Incorporated (NYSE:GLW), Mastercard Inc. (NYSE:MA), and Skyworks Solutions Inc. (NASDAQ:SWKS) so I can explain why I personally own all three and why, if you're also in your 40s, you might want to consider them for your own portfolio.
Strong as a gorilla
Shares in Corning immediately took a dive when the company reported its 2017 fourth-quarter results and are currently down more than 20% from their 52-week high. The dip might actually make this the perfect time to initiate a position in Corning.
Corning operates five divisions, the largest of which, by earnings, is its display technologies segment. This division makes a special glass substrate necessary for the manufacturing of the LCD (liquid crystal display) screens built into many products such as large-screen televisions and computer monitors. Sales in this division have long been pressured by declining glass prices and are also affected by factors such as the exchange rate of the yen. In the company's fourth quarter, earnings in this segment declined to $221 million, a 20% decrease year over year. This segment still makes up almost half of Corning's total earnings, however, so the slowdown is a large concern. Management insists, though, the decline in glass prices is finally beginning to moderate.
But focusing solely on Corning's display technologies misses the growth and long-term catalysts present in Corning's next two largest divisions: the optical communications and specialty materials divisions. The optical communications segment supplies optical fiber, the backbone of internet and wireless networks, and connectivity solutions to internet service providers and large telecoms. In 2017, Corning scored huge contracts with Verizon Communications and Saudi Telecom, and announced it had now supplied 1 billion kilometers of optical fiber, or about "one-third of the optical fiber ever produced in the history of the world." The company stated this mass scale made it the lowest-cost producer of optical fiber in the world, which makes for a pretty impressive economic moat.
The specialty materials division manufactures Gorilla Glass, the tough, flexible, and scratch-resistant glass that undoubtedly covers your smartphone and smartwatch. Sales in this division increased 17% while core earnings rose 12% year over year in the fourth quarter.
Based on Corning's full-year core EPS of $1.72, shares sell at a price-to-earnings ratio of just 15.4. After the company reported its fourth-quarter earnings, it raised the dividend by 16%, giving the stock a dividend yield of about 2.7% and a payout ratio of 42%. The company has publicly stated it will raise the dividend by a double-digit percentage again next year.
A priceless addition to your portfolio
During its annual investor day late last year, Mastercard estimated that just a little over 80% of the world's transactions were still facilitated using cash. This gives companies that stand to benefit from the digitization of money, such as Mastercard, a long runway of growth ahead. Several catalysts are currently accelerating this trend away from cash, including the rise of e-commerce and the lowered cost of card acceptance in emerging economies due to mobile connectivity.
Mastercard has also used smart acquisitions to bolster its "other revenues" business segment, which grew revenue by 17% year over year in the company's fourth quarter. This segment is comprised of a variety of security, analytical, and management tools that Mastercard's clients -- primarily card-issuing banks and financial institutions -- are happy to pay for because they generally fall far outside of their core competencies and require constant investment and attention. Mastercard has also credited these services for differentiating itself from the competition and securing new deals.
In Mastercard's fourth quarter, these catalysts all manifested themselves in solid top- and bottom-line growth: Net revenue rose to $3.3 billion, a 20% increase year over year, and diluted EPS grew to $1.14, a 33% increase year over year. Based on the company's long-term guidance of 20% EPS annualized growth, the company currently trades at a forward P/E of about 31. While that's not cheap, I believe the price is justified due to the company's proven ability to grow earnings and the presence of several larger macro trends that play to the company's strengths. In 2017, the company hiked its dividend by 14%, giving it a current yield of 0.6%. While Mastercard's payout is admittedly low, it has been consistently growing by double-digit percentages every year and could conceivably double in as little as five years.
Invest in a connected world
Skyworks Solutions designs and develops analog semiconductor chips that power the wireless connectivity in devices such as smartphones, wearables, and smart home appliances. What makes Skyworks' shares so compelling is that it stands to benefit from two huge trends: the rollout of 5G and the explosion of the Internet of Things (IoT).
Skyworks CEO Liam Griffin likes to remind investors that 5G wireless network speeds will be up to 100 times faster than 4G networks. This is important to Skyworks investors because the chips Skyworks develops for 5G are more profitable than the chips it supplies for 4G speeds. In the company's fourth-quarter conference call, transcribed by S&P Global Market Intelligence, Griffin said:
In order to make the leap to 5G, system architectures will require significantly more powerful connectivity engines to ensure the intense performance challenges are realized. This upgrade wave will create an enormous growth catalyst for the entire smartphone ecosystem. And as a leader in unwiring the planet, Skyworks is well positioned to capitalize.
Griffin believes there could be 75 billion connected devices by 2025 and that mobile-data usage could increase fivefold by 2021. Research firm IDC now projects worldwide spending on the Internet of Things will grow at a compounded rate of over 14% annually and reach about $1.1 trillion by 2021, up from an approximate $800 billion in 2017. We can quibble about the exact figures, but what cannot be denied is that the number of connected devices is going up -- by a lot. And Skyworks will definitely benefit from this trend. As Griffin pointed out in the company's fourth-quarter conference call, "by definition, these applications would not be possible without fast, secure, power-efficient connectivity solutions provided by Skyworks."
Skyworks also trades at a relatively attractive valuation. Based on its trailing-12-month adjusted EPS of $6.84, shares currently have a P/E ratio of just 14. This despite the fact that, in the company's first quarter, revenue grew by 15% and earnings per share by 24% year over year! In 2017, the company raised its dividend by 14%, giving it a yield of about 1.34%. The dividend also has a low payout ratio of less than 20%.
I have found a lot to enjoy in my 40s, despite a few more pounds around my waistline and a few less hairs on top of my head. That being said, I want to invest smartly so I can fulfill my financial needs now and still set myself up nicely for my 50s, 60s, and beyond. These three stocks are all in my portfolio because I believe they have larger tailwinds propelling them forward, trade at compelling valuations given their earnings growth, and pay growing dividends.