If you're a baby boomer, you've probably spent a lot of time in recent years working on your financial goals. However, you're also at the stage of life when your financial aims -- and getting the most out of your limited resources -- start getting more complex.
On one hand, you must prioritize capital preservation the closer you get to retirement, since you can't risk a big drop in the stock market taking a bite out of the assets you'll depend on in the next few years. But on the other hand, you're probably going to live into your 80s. If you're too conservative with your investments, you risk running out of money in old age.
Well, there's good news: A balanced approach to your portfolio can help you reach both long- and short-term goals. Investing money in fixed-income assets like bonds can secure your short-term needs. Owning a mix of dividend stocks like UGI Corp (NYSE:UGI) and ONEOK, Inc. (NYSE:OKE), and growth stocks like Chuy's Holdings Inc (NASDAQ:CHUY) can generate extra income for now, while also giving you exposure to long-term capital growth.
As a matter of fact, three Motley Fool investors think those three stocks are ideal for baby boomers who want a mix of short-term income and long-term growth. Keep reading to learn why.
The little-known parent of a well-known energy distributor
Chuck Saletta (UGI Corp): Unless you live in its relatively small service area, chances are you may have never heard of UGI. As a small natural gas and electric utility, there just aren't that many customers directly served by those operations.
Yet what many Americans are familiar with is its propane distribution business, AmeriGas Partners (NYSE:APU). A nationwide distributor structured as a partnership, AmeriGas can be found in all 50 states, and UGI owns its general partner. In addition to its AmeriGas business, UGI also has significant international operations, distributing liquefied petroleum gas (LPG) in 17 European countries.
Add that incredibly strong international distribution business to its relatively small domestic energy business, and UGI finds itself a company with around $6.5 billion in annualized revenue. That makes it big enough to make the Fortune 500 and have enough potential staying power to be considered for a spot in a boomer's portfolio.
On top of that size, UGI has a 133-year history of paying and a 30-year history of increasing its dividend.
With a current payout ratio of around 30% of earnings, it has room to continue its trend of dividend increases with its upcoming announcement. As if that weren't enough, it currently trades at a reasonable 16 times its expected forward earnings. Analysts expect UGI to be able to grow those earnings at around 7% annualized over the next five years, and it operates with a moderate debt-to-equity ratio of 1.2.
That combination of a solid business, covered and growing dividend supported by satisfactory earnings potential, and a reasonable valuation underpinned by a decent balance sheet puts UGI in a unique spot. Those factors make UGI worthy of consideration for baby boomers' portfolios.
A fast-growing pipeline of dividends
Reuben Gregg Brewer (ONEOK, Inc.): ONEOK is a large midstream oil and natural gas company, owning the assets that help get these commodities from where they are drilled to where they get processed and, eventually, used by end customers. The bulk of its revenue is fee-based, so it's a fairly consistent business. The company passes on a lot of its cash to shareholders in the form of dividends, a key reason baby boomers near or in retirement might like ONEOK and its 5%-plus yield today. It's increased the dividend for 16 consecutive years.
However, there's more to like than just a high yield. ONEOK also has robust plans for growing that dividend over time. That includes around $4 billion worth of capital investments between now and 2020. That spending, in turn, is expected to support annual dividend increases of between 9% and 11% each year through 2021. That's more than three times the historical growth rate of inflation, which means you will be increasing your buying power over time -- another great reason for baby boomers to like ONEOK.
And then there's the fact that ONEOK looks relatively cheap today, with its shares still 20% below their 2014 highs (though they are materially above their recent lows). The yield is also toward the high end of its range over the past decade. And, because this midstream company is not a limited partnership, a common corporate structure in the midstream space, you can own ONEOK in a retirement account without the added tax complexity of MLPs. All in, ONEOK is a great option for helping baby boomers reach their financial goals.
Good value for great long-term growth
Jason Hall (Chuy's Holdings Inc): The average baby boomer is going to live into their 80s, and a too-conservative approach to your investing could mean running out of money later in life. Owning a group of high-quality growth stocks can help you reach your long-term wealth goals, and one that deserves a look is Chuy's.
Like most of its competitors, the casual Mexican eatery chain has struggled with weak traffic and sales growth caused by the recent "restaurant recession." Higher operating costs have also squeezed its bottom line. However, there is some indication that business is starting to pick up, and management has solid expectations for 2018 and beyond.
But even after a bit of a rebound since late 2017, its stock is still down about 29% from the peak in 2016. It's even cheaper -- down 32% -- on a forward earnings basis, trading for about 24 times the company's guidance for 2018.
But this isn't a "quick buck" opportunity, but instead a long-term thesis based on the company's prospects to expand. Chuy's unique theme, low prices, and casual, family-friendly restaurants pair with a solid economic model that generates strong profitability, and with just over 90 locations, it should be able to grow substantially bigger in the years to come.
Economic cycles come and go. It may take a few years to play out, but over time, Chuy's prospects -- and a great valuation -- make it an ideal market-beating investment to help attain your long-term wealth goals.