Although the stock market tends to rise over the long run, the year-to-year performance of Wall Street can be something of a crapshoot, as 2022 demonstrated. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all plunged into a bear market last year and produced their worst returns since the financial crisis in 2008.
While stock market downturns are known to weigh on the public's emotions, they're surefire opportunities for patient investors to pick up stakes in time-tested businesses on the cheap.
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Bear markets can be a particularly good time for retirees to put some of their money to work. Keep in mind that there are smart ways for retirees to invest their money without significant risk to their principal. What follows are three time-tested stocks that have the potential to double retirees' money, including dividends paid, over the next five years.
Enterprise Products Partners
If there's one thing retirees love, it's a rock-solid income stock with below-average volatility that'll put historically high inflation in its place. I give you energy stock Enterprise Products Partners (EPD -0.38%), which is sporting a 7.4% yield and has increased its base annual distribution for the past 25 years. This payout alone will get retirees more than a third of the way to doubling their money in five years.
Admittedly, some retirees aren't going to be thrilled with the idea of putting their money to work in the oil and gas industry. During the initial stages of the COVID-19 pandemic, we witnessed a historic demand drawdown for energy commodities that absolutely throttled drilling stocks. That memory is still fresh in the minds of investors.
However, Enterprise Products Partners operates in what's arguably the safest niche within the energy complex: midstream. Enterprise owns and operates more than 50,000 miles of transmission pipeline; can store 14 billion cubic feet of natural gas and 260 million barrels of oil, natural gas liquids (NGLs), and refined products; and has 20 deepwater docks handling NGLs. It's effectively an energy middleman.
The advantage of being an energy middleman can be seen in the contracts Enterprise Products Partners signs with upstream drilling companies. Specifically, it locks in long-term, fixed-fee contracts that remove spot-price volatility from the equation and generate highly predictable cash flow. The predictability of its cash flow year in and year out is what gives management the confidence to make acquisitions and outlay billions of dollars for new NGL and natural gas projects.
Another testament to Enterprise's amazing payout is its distribution coverage ratio (DCR). The DCR represents the amount of distributable cash flow from operations relative to what it actually pays out to its investors. A DCR of 1 or less would signify an unsustainable payout. Enterprise Products Partners' DCR never fell below 1.6 during the pandemic.
With about a dozen major infrastructure projects slated to come online by middecade, annual earnings growth of 5% (or slightly higher) is the expectation here. This makes a triple-digit total return by 2028, including dividends paid, a very real possibility.
Walgreens Boots Alliance
A second time-tested stock that can deliver a 100% total return for retirees over the next five years is pharmacy giant Walgreens Boots Alliance (WBA -0.63%). Walgreens offers an inflation-fighting 5.3% yield and has increased its annual payout for 47 consecutive years. This dividend alone will get retirees more than a quarter of the way to doubling their money in five years.
The reason Walgreens Boots Alliance is such an amazing deal is because of Wall Street's shortsightedness. Since it generates the vast majority of its revenue from its brick-and-mortar locations, a reduction in foot traffic during the COVID-19 pandemic walloped its operating results. However, with the worst of the pandemic likely over, the company's numerous strategic initiatives can blossom and deliver for patient shareholders.
Arguably the biggest change being implemented by Walgreens is an increased emphasis on healthcare services. It's partnered with and invested in VillageMD, with the goal of opening 1,000 full-service health clinics in over 30 U.S. markets by the end of 2027. These VillageMD clinics are staffed by physicians, which should encourage repeat visits by patients and improve loyalty at the grassroots level.
As I noted earlier this week, Walgreens Boots Alliance is also aggressively putting money to work on a variety of digitization initiatives. This includes revamping its supply chain to reduce inventory costs as well as building out its online presence. Even though it'll continue to generate most of its sales inside its stores, the pandemic taught management the importance of online sales and convenience. There's no reason Walgreens can't continue to grow its annual digital sales by a double-digit percentage.
Walgreens is being more mindful of its spending and balance sheet as well. The company has slashed its annual operating expenses by more than $2 billion without impacting its digitization or health clinic initiatives. Further, its wholesale drug business was sold to AmerisourceBergen for $6.5 billion, which helped reduce its debt load and improve its financial flexibility.
If Walgreens can modestly grow its bottom line over the next five years, it shouldn't have any trouble producing a triple-digit total return with a current price-to-earnings ratio of less than 8.
Image source: Walt Disney.
Walt Disney
The third time-tested stock that can help retirees double their money over the next five years isn't currently paying a dividend, but it might very well reinstate its payout at some point in the quarters to come. I'm talking about the famed "House of Mouse," Walt Disney (DIS 1.69%).
For nearly three years, Walt Disney's operating performance was adversely impacted by the pandemic. Lockdowns in various parts of the world hurt the company's theme-park operations, while reduced capacity at movie theaters impinged on film entertainment revenue. Although COVID-19 isn't gone, the worst of its impact on economic activity looks to be over. In other words, retirees have a green light to take a position in one of America's truly iconic businesses.
One of the reasons Disney is such a special company is its uniqueness. Sure, there are other theme-park operators, movie studios, and content creators. But no other company can transcend generational gaps and connect with users on an emotional level quite like Disney can with its theme parks, movies, original shows, and characters. It's incredibly difficult to build a moat in the media space, but Walt Disney has done just that.
To add to this point, few companies offer the pricing power that Disney can bring to the table. Since Disneyland opened in Southern California in 1955, the actual rate of inflation in the U.S. has climbed by around 1,000%. Meanwhile, the admission price for Disneyland has scorched 10,300% higher (from $1 to $104) over the same stretch. Despite increasing ticket prices at 10 times the rate of inflation, the number of park visitors has trended higher over time. This is a reflection of the company's incredible branding power.
Over the next couple of years, expect the company's streaming services to play a key role in its growth. In less than three years following its November 2019 launch, Disney+ amassed 164.2 million subscribers. If Hulu and ESPN+ are also added, Disney has more streaming subs than Netflix. Introducing a modestly cheaper ad-supported tier as well as raising monthly prices on its ad-free streaming services should allow Disney to push its streaming segment to profitability within the next two years.
If Walt Disney can successfully shake off near-term uncertainty and regain its luster, sustained annual earnings growth of between 10% and 15% is possible through 2027. This would put a doubling of its share price in the realm of possibilities five years from now.
