I add cash to my retirement accounts each month. Depending on market conditions and my current cash position, I like to deploy at least some of it immediately. Even though stocks are near an all-time high, and my cash is lower than I'd like, I plan to buy a few stocks in March because they're just such attractive opportunities right now.
Realty Income (O -0.17%), Starbucks (SBUX 0.47%), and Verizon Communications (VZ 1.17%) top the list of stocks I plan to buy in my retirement accounts this month. Here's why I believe they're great ones to buy to help support what I hope will be a comfortable retirement.
A wealth creator
Realty Income is a real estate investment trust (REIT) with a knack for growing shareholder value. It has delivered a 13.9% compound annual total return since its public market listing in 1994.
Two factors have helped drive its ability to create value for investors. Realty Income has grown its adjusted funds from operations (FFO) at a 5% compound annual rate since going public.
The company's stable and growing cash flow has allowed it to pay an attractive and steadily rising monthly dividend. The REIT currently yields 5.9% due to the nearly 20% decline in its share price over the last year. It has increased its payment 123 times since 1994, growing the payout at a 4.3% annual rate.
Realty Income can continue growing shareholder value by increasing its adjusted FFO per share and high-yielding dividend. The REIT is aiming to raise its adjusted FFO by 4% to 5% per share over the long term by expanding its portfolio of durable income-producing properties. That should enable it to continue increasing its high-yielding dividend.
Add the two up, and it should be able to deliver a 10%-plus average annual total return. That's a strong return for a lower-risk, retirement-focused investment.
Still a growth stock
Starbucks has also traded down over the past year (by about 8%). Because of that, it has a cheaper valuation. Its forward price-to-earnings (P/E) ratio has fallen from the high 20s to the low 20s, and its dividend yield has risen to 2.4%. That's a compelling value proposition for a strong and growing company.
Despite already being the largest coffee chain in the world, Starbucks has a lot of growth ahead. The company plans to expand to 35,000 stores outside of North America by 2030, a roughly 60% increase from its current international footprint (and a more than 40% overall increase). The company also expects to continue expanding its U.S. store footprint while growing its same-store sales and margins.
These drivers should grow same-store revenue by more than 5% annually over the long term while total sales rise at more than 10% per year. Meanwhile, the company's expanding margins should support 15%-plus annual growth in earnings per share (EPS).
Earnings growth should enable Starbucks to continue increasing its dividend at a healthy pace. Given that robust growth, even if the valuation multiple continues contracting, it could still produce total annualized returns in the mid-teens from here. That's an excellent return from such a high-quality company.
A big-time income stock
Verizon is a cash flow machine. The telecom produced $37.5 billion in cash flow from operations last year and $18.7 billion in free cash after funding capital expenses. That gives it the money to pay its dividend ($11 billion) with room to spare.
The company currently offers a bond-like income stream, given its massive yield of 6.7%. However, unlike a fixed-income investment, Verizon steadily increases its payment. The company raised its dividend by around 2% last year, its 17th straight year of dividend growth. That should continue, providing investors with a strong and growing base return.
Verizon's already robust cash flows should rise in the future. It has invested heavily to grow its 5G network, which should increase revenue and operating cash flow.
Meanwhile, spending should come down (with lower operating and capital expenses), which should boost its free cash flow. That will give the company the growing free cash flow to continue increasing its dividend and repay debt, further strengthening its investment-grade balance sheet.
Falling debt will improve cash flow by reducing interest expenses while transferring value from creditors to shareholders. These factors should drive stock appreciation over the long term, enabling Verizon to generate solid total returns that could approach the double digits. That's a good return for such a low-risk, income-focused stock.
Solid returns with less risk
Realty Income, Starbucks, and Verizon are great stocks to invest in with retirement in mind. They have lower risk profiles and should produce solid total returns over the coming years. That's why I plan to buy a few more shares this month as I continue my steady march to a comfortable retirement.
