With nearly two decades to go before retirement, investors in their 40s certainly shouldn't shy away from buying stocks as part of a well-rounded portfolio. That said, your 40s are a time to start cutting back on risk and start thinking about long-term capital returns. To help with this endeavor, our Foolish contributors offer up three stock picks below that might make great additions to your portfolio at this particular time in your life.
Considering investors in their 40s have at least 15 years until they reach official retirement age, they still have plenty of room to approach portfolio candidates with the aim of owning them for extended periods of time. But depending on your individual risk tolerance, you may want to find a company that strikes a reasonable balance between share price appreciation and rewarding investors through capital returns.
As it stands, I think 40-something investors will be hard-pressed to find any business that better fits that bill than Walt Disney (NYSE:DIS), shares of which recently pulled back as investors worried over a 6% decline in operating profits at Disney's core Media Networks segment. For that, the company blamed a combination off higher programming costs and continued subscriber declines as more cord-cutters ditch cable in favor of competing streaming video services.
Seemingly lost on the market, however, was the fact that Disney technically posted a record quarter in terms of both revenue and earnings, driven by 46% year-over-year revenue growth (and 86% operating profit growth) at its Studio Entertainment segment on the heels of the now $2 billion (and counting) box office blockbuster that is Star Wars: The Force Awakens. And that's not to mention the impending onslaught of dozens of sequels, spinoffs, and original studio creations from not only Disney's ownership of Lucasfilm, but also from Marvel, Pixar, and its namesake studios. Then, after the curtains fall, Disney is set to receive related boosts as its respective big-screen successes trickle down to consumer goods, parks and resorts, and yes, Media Networks.
Over the longer term, Disney remains well positioned to capitalize on the transition away from traditional cable through streaming partnerships with the likes of Netflix and Amazon Prime Instant Video. And in the meantime, investors can let compounding do its work since Disney typically aims to return at least 20% of all cash generated to shareholders through dividends and repurchases.
All things considered, that's why I think investors in their 40s can rest easy owning Disney well into retirement if they so choose.
I turn 40 later this year, and a stock I've bought multiple times over the past year -- and will likely buy more of again in the future -- is Phillips 66 (NYSE: PSX). It may sound nuts to offer up an oil stock, but hear me out. Here are some key reasons I particularly like Phillips 66:
- It's an oil buyer, not an oil producer.
- Its advanced refineries can process lower-quality (and lower-cost) crudes, boosting profits even when oil prices fall.
- The company is investing in natural gas infrastructure and petrochemicals production growth, not refining growth.
- Management has demonstrated a focus on sustainable dividend growth.
The bottom line? Phillips 66's refining business produces huge cash flows, but it's a limited-growth business, and that growth takes a lot of capital, and many years to generate returns. By taking excess profits and investing them in higher-growth, better-return opportunities, particularly based on a long-term expansion of U.S. natural gas demand and production, the company's management is doing right by long-term investors.
Taking it one step further, management has increased the dividend 180% since the company was taken public in a spinoff from ConocoPhillips a few years back, and it also bought back a remarkable 15% of shares outstanding over that time. Lastly, even after a recent bounce, Phillips 66 shares are still down about 15% from their highs, and are yielding nearly 3%.
The bottom line for 40-somethings: Phillips 66 can be a great cornerstone holding for your long-term portfolio as an energy stock with limited commodity exposure, growth prospects, and an awesome track record of shareholder returns.
Like my Foolish colleagues, I think 40-something investors are best served by choosing stocks that offer a reasonable mix of share price appreciation and a solid dividend moving forward. In my view, Teva Pharmaceutical Industries Ltd. (NYSE:TEVA) fits that description nicely.
Teva is in the midst of a $40.5 billion cash and stock deal with Allergan (NYSE:AGN) to acquire the latter company's generic drug unit. This deal would instantly transform Teva into the world's largest generic drug company in the world, bolstering its power to negotiate with public and private payers.
By acquiring Allergan's massive generic drug unit, which sports over 1,000 approved products, Teva would also diversify its revenue base in a big way -- which should, in turn, soften the blow from the recent introduction of generic rivals to its flagship brand-name multiple sclerosis drug, Copaxone.
The bottom line is that this acquisition -- if it closes in the first quarter of 2016 as planned -- is expected to drive Teva's annual revenues up by 26.6% this year and by another 6% in 2017, according to analysts polled by S&P Global Market Intelligence.
This hefty surge in revenue should be more than enough to at least support the drugmaker's dividend yield of 2.4% at current levels, and perhaps fuel increases to its payout going forward.
The potential fly in the ointment, however, is that antitrust laws in the U.S. and EU may significantly delay this deal, or worse yet, nix it altogether, so I personally won't be picking up shares in Teva just yet.
Having said that, I think Teva is definitely a stock worth considering by investors in their 40s if all goes as planned for the company, given that this transformative deal would generate enormous revenue growth for Teva, along with the potential for noteworthy increases to the company's dividend down the line.
George Budwell owns shares of Allergan PLC. Jason Hall owns shares of Amazon.com, Netflix, and Phillips 66. Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com, Netflix, and Walt Disney. The Motley Fool recommends Teva Pharmaceutical Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.