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3 Stocks to Bankroll Your Retirement

By Danny Vena - Updated Jun 24, 2020 at 9:36AM

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By focusing on dividends alone, investors may be leaving money on the table.

When planning for retirement, many investors stock their portfolio with companies that offer a growing and generous dividend yield, but whose growth prospects fall somewhere between slim and none at all. People are living longer, increasing the threat that investors will outlast their retirement savings.

In recent years, in fact, life expectancy has made a sizable leap forward, increasing by 5.5 years between 2000 and 2016, the fastest increase since the 1960s, according to the World Health Organization (WHO).

As a result, what was once a perfectly acceptable investing approach may no longer be enough to fund your golden years. To offset the prospects of living longer and potentially running out of money, it's not a bad idea to layer an element of growth into your portfolio, helping to ensure that your nest egg will last as long as you do.

With that in mind, investors would do well to consider adding these three stocks to help bankroll their retirement.

Businessman pulling pile of $100 bills off a table.

Image source: Getty Images.

Microsoft: A dividend and much more

Funds invested in Microsoft (MSFT -0.26%) were pretty much dead money for the 15 years leading up to early 2014. But the company has enjoyed something of a renaissance under the leadership of Satya Nadella, who took the reins in February of that year. Microsoft went from laughingstock to one of the world's most valuable companies in a period of just a few years, with its stock gaining more than 400% in the process. There's even speculation that Microsoft is in the running to become one of the first companies to achieve a market cap of $2 trillion, about 35% higher than its current level.

The catalysts that powered the company's remarkable turnaround are also the same reasons that those looking to fund their retirement should consider buying Microsoft stock. Nadella's decision to focus on forward-looking technologies like cloud computing and artificial intelligence has paid huge dividends. Microsoft's intelligent cloud segment generated $39 billion in fiscal 2019, accounting for nearly 31% of the company's revenue. Additionally, Azure Cloud is widely considered the fastest growing among the cloud leaders, with revenue that grew 59% year over year in the most recent quarter. 

The company also generates a generous amount of recurring cash from its Office and Dynamics products. This helps fund its solid dividend, which currently yields about 1%. With a payout ratio of just 32%, Microsoft has plenty of room for future dividend increases.

Sprouts growing out of stacks of coins overlaid with clock.

Image source: Getty Images.

Apple: Growth and one of the safest dividends around

There's no denying that Apple (AAPL -0.09%) has been one of the most remarkable success stories in recent memory. The debut of the iPod in 2001 started the company on the road to riches, but it was the launch of the iPhone in 2007 that cemented Apple's place in history.

Apple is also a favorite of legendary investor and Berkshire Hathaway (BRK.A 1.35%) (BRK.B 1.26%) CEO Warren Buffett. While it was one of his portfolio managers who first purchased Apple stock, it so peaked Buffet's interest that he was soon adding shares hand over fist. Even though it represents Berkshire's largest holding, owning more than 5% of Apple shares, Buffett famously said, "I'd love to own 100% of it." 

While the iPhone has historically accounted for the bulk of Apple's revenue, the company has made a dramatic shift in recent years, turning its gaze to the vast potential of its services segment, a move that now seems prescient. Over the trailing-12-month period, services have generated more than $50 billion in revenue for Apple, accounting for nearly 19% of the company's total sales, up from just 12% three years prior.

Apple generates an enviable amount of cash, with operating cash flow of more than $13 billion in the most recent quarter, up nearly 20% year over year, helping fund a strong and growing dividend. Apple has more than doubled its payout since resuming its dividend in 2012, with a yield currently just below 1%. The company uses less than 25% of profits to fund the payout, giving Apple plenty of resources to ensure its future growth.

A spark and an arrow rising from a businessman's hand.

Image source: Getty Images.

MercadoLibre: Pausing the dividend to focus on growth

While it isn't a household name in the U.S., Latin American powerhouse MercadoLibre (MELI -2.67%) is at the forefront of two of the biggest trends in technology: e-commerce and digital payments. About half of consumers in the region are unbanked or underbanked, meaning they don't have a bank account or credit card, stunting the massive potential growth of online retail.

To counter this challenge, MercadoLibre developed Mercado Pago, a payment system that allowed consumers in the largely cash-based society to add money to their account at a network of convenience stores and other locations. While it served to increase the adoption of e-commerce on MercadoLibre's platform, a curious thing happened. Other e-commerce providers rushed to add Mercado Pago as a payment option, a move that was quickly followed by a growing list of brick-and-mortar stores.

As a result, use of Mercado Pago soared, and with it, MercadoLibre's fortunes. Even in the face of the coronavirus pandemic, revenue grew 70% year over year in local currencies in the first quarter -- but that only tells part of the story. While gross merchandise volume (GMV) from e-commerce grew 34%, total payment volume (TPV) surged 82% in local currencies, and the number of payment transactions increased 102%. Off-platform TPV had the most robust growth, up 140% in local currencies, while the number of transactions soared 146%. 

MercadoLibre previously paid a modest dividend, but suspended the payout in early 2018 to focus on scooping up market share and accelerating its growth. The company has yet to resume its payout, but in the little more than two years since the company suspended its dividend, its shares have gained 158%, more than making up for the missing income.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Apple and MercadoLibre. The Motley Fool owns shares of and recommends Apple, MercadoLibre, and Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$173.03 (-0.09%) $0.16
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$292.71 (-0.26%) $0.76
Mercadolibre, Inc. Stock Quote
Mercadolibre, Inc.
MELI
$1,053.75 (-2.67%) $-28.91
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$461,300.00 (1.35%) $6,130.00
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$306.65 (1.26%) $3.83

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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