3 Stocks for Your Retirement Portfolio
Damian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Although the consumer products market is one of fierce competition, some companies in the sector offer very low business risks due to their strong brand names and international penetration. Paying out attractive dividends while offering a safe investment, Clorox (NYSE: CLX), Colgate-Palmolive (NYSE: CL), and Procter & Gamble (NYSE: PG) are three firms that deserve a closer look, especially for those looking to set up a retirement portfolio.
Clorox: Household industry
Clorox manufactures, markets, and sells consumer products, mainly in the cleaning, household, and personal care segments where competition is fierce. However, its strong brand names and dominance in almost every sector it competes in have provided the firm with a fair moat that has and will most likely continue to keep competitors out of its share of the market. Furthermore, this protection is boasted by “returns on invested capital (which have averaged nearly 25% over the past five years) far in excess of our cost of capital estimate and solid cash flow generation.” (Morningstar)
Although Clorox is expected to underperform its industry peers in terms of EPS growth over the next few years, its stability and moat, added to a constantly increasing 3.08% dividend yield, high returns on equity, ongoing stock repurchase plans, and a reasonable valuation (at 19.5 times P/E versus the 26.6x industry mean) make it a worthy investment for the long-term.
Even though analysts expect the skillful management of Clorox´s wide brand portfolio to be the main growth driver, various other development avenues seem available for exploitation. International expansion is one of these, as under-penetrated markets like Brazil, Russia, India, China, the Middle East, and several other emerging Asian economies provide plenty of expansion opportunities.
Acquisitions have and will continue to play an important role in the firm’s progress, as evidenced by the Caltech Industries, Aplicare, and HealthLink purchases, among others. The infection-control business seems to offer plenty of upside, so the company´s incursion in the field looks promising. Moreover, bulky capital investments in IT systems should boost productivity while lowering costs (Zacks).
Colgate-Palmolive: Global leadership in personal related products
Colgate-Palmolive is another big leader in the consumer products segment, mainly competing in the oral, personal, health-care, and pet nutrition industries. Although analysts advocate on holding on this stock at the moment, the firm offers sustainable competitive advantages for long-term investments that cannot be overlooked. Similar to Clorox, Colgate has been consistently increasing its dividend yield -- for about 50 years now -- with a yield projected at 2.35% at the current price.
The firm’s wide economic moat is derived from a strong brand portfolio and particular dominance in the oral and personal care segments. However, Colgate does not rest on its mature products but rather continues to innovate. This feature, coupled with strong quarterly results, strategic acquisitions, and other efficiency increasing initiatives, supports a 9.4% expected EPS annual growth rate over the next five years to come.
Regarding cost reductions, a four year program launched in 2012 is expected to generate cost savings of approximately $365-$435 million annually from the fourth year, reducing the firm´s workforce by 8%, while projected to drive sales growth and market share expansion. In the acquisition field, Colgate´s management remains focused on purchasing companies with long-term growth potential, as evidenced by the Sanex buy.
Although its valuation at 23.6 times its earnings seems a little less attractive than Clorox’s, Colgate is a company you might want to add to your retirement portfolio. With consistently increasing dividends and one of the strongest brand names in the business, Colgate and its stockholders seem poised to continue to benefit from both mature and emerging markets.
Procter & Gamble: A competitor difficult to catch up
Procter & Gamble (P&G ) markets its beauty, grooming, health care, fabric care, home care, and baby care products in roughly 180 countries, holding more billion dollar brands than any of its competitors in the household goods industry. Its wide international presence, brand penetration, and several benefits derived from its scale provide this firm with a wide moat that will help keep its peers at bay and the company profitable for quite a long time.
Although some missteps have impacted the company´s market share lately, long-term prospects still look encouraging. Growth might be slow, but sustainable at a 7.65% consensus annual EPS growth rate for the years to come; meanwhile, the firm should continue to pay out consistently increasing dividends -- projected at 3.1% -- and further return value to stockholders by repurchasing stock. It seems important to highlight that P&G possesses a bulky cash mattress and about 90% cash flow productivity to back these and other expenses, including acquisitions, product innovations, and brand development (Zacks).
Although some analysts doubt the possibility of a complete turnaround after a weak fiscal 2012, management’s $10 billion cost-saving plan that includes layoffs, material cost reductions, and efficiency improvements seems pretty encouraging to me. Several other elements portray an encouraging outlook for the years to come; namely, a strong focus on product innovation and marketing, a robust presence, and plenty of expansion opportunities in emerging markets and various initiatives aimed at ameliorating its product portfolio’s value.
Trading at 19.3 times its earnings and 3.2 times its book value, more than a 27% discount to the industry's mean valuations, I'd recommend buying and holding this stock while reinvesting dividends earned to widen your gains in the long-term.
Above, I have reviewed three huge consumer product companies that seem poised to deliver steady and sustainable growth for a long time while paying out dividends that can even be reinvested into them, further enhancing long-term returns. Clorox, Colgate, and P&G are three firms that you should add to your retirement portfolio, as they present some of the lowest business risks within publicly traded enterprises.
Making the right financial decisions today makes a world of difference in your golden years, but with most people chronically under-saving for retirement, it's clear not enough is being done. Don't make the same mistakes as the masses. Learn about The Shocking Can't-Miss Truth About Your Retirement. It won't cost you a thing, but don't wait, because your free report won't be available forever.
Damian Illia has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!