Whether you're newly retired or already in your 70s, there's a good chance you should still be investing at least part of your nest egg for growth. After all, the average retirement lasts almost 20 years, and if you make it to 65, the odds are in your favor that you'll live past 80. And while longer, healthier lives are wonderful, they also come with the stark reality that the older we get, the less we are capable of earning an income.
Which brings us back to investing to grow your nest egg, even if you're already retired. How can you safely accomplish that? By allocating part of your holdings -- assets that you won't need until later in retirement -- to high-quality stocks with solid prospects for above-average returns.
Three Motley Fool investors have already put in the work to help you get started, highlighting Harley-Davidson Inc (HOG -2.90%) and 3M Co (MMM -0.90%) as dependable dividend stocks with solid prospects, and Trex Company Inc (TREX -1.68%) as a growth-focused investment. Read on to learn what these real-world investors like about these great companies, and why they can help retirees keep their nest eggs growing for the long-term.
Rumble on with this road king
Rich Duprey (Harley-Davidson): Let's get one thing dealt with right from the get-go. Harley-Davidson does have some problems at the moment: Sales cratered 12% in the first quarter, it is expecting shipments to tumble by at least the same amount in the second quarter, and it has more competitors clambering to knock it down a few pegs. So why recommend this motorcycle maker as a stock someone could build their retirement nest egg around?
Because Harley-Davidson isn't a broken business by any stretch. Though it's going through some strategically difficult times at the moment, the big motorcycle manufacturer should have little trouble bouncing back.
First, despite truly dismal sales, Harley remains a very profitable business because it refuses to discount its bikes, believing they're worth every dollar it charges. Although it's lost some market share to the competition, it continues to own more than half of the big-bike market in the U.S. Harley also dominates every market demographic there is, including the customers it and the competition want to reach out to: Women, youth, and urban riders all choose Harley-Davidson first.
While Harley may be going off on a tangent with its new electric motorcycle it expects to introduce next year (Harley competitor Polaris Industries CEO Scott Wine has said that if he could figure out a way to make one profitably, he'd be all over e-bikes), it's also possible it could be the right bike at the right time for the company. It has a top partner in Alta Motors helping, so the initiative shouldn't be dismissed out of hand.
Trading at only nine times free cash flow, Harley-Davidson is bargain-basement cheap. Its stock also goes for only 12 times trailing earnings and just 10 times next year's estimates, and analysts still expect it to grow earnings over the long haul at an 8.5% clip. With a dividend yielding 3.6%, Harley-Davidson could easily be a golden egg in any retirement portfolio.
You can bank on this Dividend King in retirement
Neha Chamaria (3M): 3M may have shed almost 15% in value so far this year, but this dividend stock remains one of my top retirement picks. In fact, 3M is among the few "visionary" dividend stocks out there, as I call them, making the recent drop in the stock price a great opportunity for retirees. I say "visionary" because 3M doesn't just pay regular dividends, but has preset financial goals that signal strong dividend growth ahead.
First things first: 3M is a Dividend King, or among the handful of companies that have increased their dividend every year for at least 50 consecutive years. That's as good as it can get when it comes to safety in dividend stocks -- something retirees would prefer. 3M boasts an incredible 60-year record of annual dividend increases, with its last dividend increase coming in at a solid 16%.
3M's sales crossed $30 billion last year to hit a record, thanks to a portfolio of more than 60,000 products that serve the needs of industries across the globe under flagship brands like Post-it and Scotch, among others. The market may have turned wary of 3M's decelerating growth, but would you really consider the double-digit growth in earnings per share (EPS) that the company is targeting for fiscal 2018 a reason for concern?
Now here's why 3M looks fit to grow your nest egg: Between 2016 and 2020, the company is targeting 8% to 11% growth in EPS and 100% conversion of net income into free cash flow. Because dividends are paid out of free cash flow, investors can safely expect higher dividends in coming years. And going by 3M's dividend history, there's little reason to believe the company won't reward shareholders beyond 2020.
The titan of decking is just getting started
Jason Hall (Trex Company): With more than 40% of the wood-alternative decking sold in North America each year bearing the Trex logo, it would be easy to assume that it's going to be hard for the company to continue delivering the kind of growth it has reported in recent years. Over the past half-decade, Trex's EPS has increased over 600%, while its stock price has quadrupled:
But I expect Trex is only just getting going. To start, Trex's dominant share of the alt-wood segment of the decking market is far less impressive when you work plain wood into the conversation. When compared against cut-up trees, Trex only makes up about 10% of board-feet of decking sold each year in North America. Wood is the real competition for Trex. And with by far the most-recognized brand in the industry and dominant distribution across the U.S., it is very well-positioned to continue growing its total share for years to come.
Furthermore, management continues to wring more efficiency -- and better margins -- out of its manufacturing facility, while also steadily investing in research and development to improve its already best-in-class products. Trex isn't cheap, trading for about 26.8 times 2018 earnings projections, but its prospects, cash flows, and high-quality management have proven worth the premium. I think that's going to remain the case for many years to come.