7 Stocks I'll Retire On

Published in Investing on 10 May 2012

Top blue-chips for buy-and-forget investors.

Is it possible to build a portfolio today -- when you have years or even decades to go before retiring -- and then just set it aside, without constant fretting and regular tinkering?

Absolutely. And when I sat down to write this article, I had my fellow set-it-and-forget-it investors in mind.

Think of it as 'The Busy Investor's Portfolio' -- a basket of some of the best long-term investments to rely on (and not worry about) to help fund your golden years.

Let's take a look at some criteria for a solid, long-term investment... and the seven companies that appeal to me right now.

Your pension's not enough

We're at a pivotal point here in the UK. The warnings about impending pension shortages should be enough to snap us back to reality. Like right now. That's because we're going to have to work longer and save harder to maintain a reasonable income in our later years.

This is where the stock market can be your greatest resource. With time on your side -- and the ability to leave your emotions at the door -- you can put the market to work for you.

If you want to build a portfolio that will grow steadily over the years -- and demand little of your time doing so -- then I recommend you look for a few important points.

A busy investor's path to freedom

Finding great companies to buy for the long haul doesn't have to be difficult. Here's what I like to see:

1. Size and Stability
Bigger companies may lack their smaller counterparts' growth potential, but they do offer greater security and their shares prices tend to move less dramatically. We also want a track record of solid performance.

Talk about stable: Johnson & Johnson (NYSE: JNJ.US) has a 118-year history operating a diverse group of healthcare-related businesses. This blue chip is a powerhouse in the US medical, pharma and consumer products sectors, and pays a reliable dividend. 

A company this size should have enough established brands and financial resources -- strengths less likely to be found at smaller firms -- to offset any missteps from new boss Alex Gorsky, but I have confidence in the new exec to deliver for shareholders.

For exposure to the healthcare sector on this side of the Atlantic, pharmaceutical giant GlaxoSmithKline (LSE: GSK) gets my vote. I'm drawn to the strong underlying business fundamentals of this well-known firm, and I'd dub it a great 'foundational' share for just about any portfolio. Glaxo also boasts an above-average dividend yield to sweeten the pot.

2. Consistency
While many investors look for fast-growers, I'd counter that set-and-forget investors want to see steady, consistent gains in revenue, free cash flow and other key measures. Slow growth won't make headlines, but it will help prevent the kind of ugly surprises that can torpedo a share price.

Another industry leader I like for the Busy Investor Portfolio is Unilever (LSE: ULVR). This consumer-goods company throws off consistently strong cash flow (and a growing dividend) from its core business here in the UK, and I only see that improving as it strengthens its hold in emerging markets.

3. Competitive advantage, aka 'the moat'
How well can a company fend off its competitors? The durability of a company's competitive advantages determines its long-term profitability and performance. The more moat, the merrier.

Tanqueray gin, Captain Morgan rum and Guinness stout are just a few of the powerhouse brands in Diageo's (LSE: DGE) cabinet. In fact, the drinks group owns nearly 20% of the world's top 100 alcoholic brands, which it sells in more than 180 countries. It has secured itself at the top of the industry, and is using its massive marketing budget to make sure it stays there.

With Coca-Cola (NYSE: KO.US), the Busy Investor Portfolio is investing in the world's most valuable brand (and more than 500 'sub-brands'). The strong brand-driven cash flow spills over into earnings and dividends -- maybe that's why Coke caught the eye of US investment legend Warren Buffett, who owns 8.8% (200 million shares) of the company. With truly massive global distribution, Coke has a brand-driven moat that's hard to beat.

4. Dividends
Perhaps most important -- and why all seven of the Busy Investor ideas tick this box -- you want shares that pay you back through dividends. Look for companies that can provide healthy payouts now and consistent dividend growth over time (without jeopardising the company's financial health).

My first pick for dividend payers is Tesco (LSE: TSCO), which has made headlines here in the UK for all the wrong reasons. What you don't see in the news, though, is anything touting the firm's 28-year history of dividend increases. With a healthy balance sheet backed by a strong asset portfolio (think land and stores), Tesco should be able to reduce its capital expenditure (buildings, equipment, and so on) and increase cash flow. And that's all good news for shareholders.

Astute readers will point out that this last share idea runs a bit counter to the 'Size and Stability' argument. But I like City of London Investment (LSE: CLIG), a £100 million fund manager, for its asset-light business model, which produces lots of cash flow. I consider its 6.4% dividend appealing -- and safe -- for fellow Busy Investors.

Market timers need not apply

So there you have it: The seven stocks I'll retire on, assembled neatly into my Busy Investor Portfolio. As I'm a regular saver and investor, I am building my portfolio over time (that is, not 'lump sum').

You'll notice I didn't spend any time talking about the price of these seven investments. Not because it doesn't matter -- you don't want to pay too much for a share, after all -- but because it matters less and less over time... and this is a long-term venture after all.

Now that you're set, you can forget

Let's not kid ourselves: investing in shares does take some time

But sparing a few minutes a month now and then to set yourself on the path to a good -- or even great -- retirement is a no-brainer...

...especially in the face of shrinking pensions, rising inflation... and the fact that you and I aren't getting any younger! 

Let me finish by adding that, for help building your own winning portfolio, I'd recommend you read "What Every New Investor Needs To Know" -- a free Motley Fool report dedicated to getting you started with shares.

Happy set-it-and-forget-it investing, and good luck!

Oils, Pharmaceuticals, Banks, Telecoms -- just where should you invest today? "Top Sectors Of 2012" is The Motley Fool's latest guide to help Britain invest. Better. The report is free.

Further investment opportunities:

Jill is still building her retirement portfolio and of the shares mentioned above owns Johnson & Johnson, Tesco and Unilever. The Motley Fool owns shares in City of London Investment and Tesco, and has recommended shares in Unilever.

Share & subscribe

Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

GrangeInvestor 10 May 2012 , 11:54am

Diageo is probably my favourite stock in my portfolio. The growth this year has been fantastic given the environment, great dividend, great brands and big emerging market exposure. The only negative is that I'd prefer the debt to be a bit lower but I can live with that.

eccyman 10 May 2012 , 12:31pm

Agree that Diageo comes close to being the perfect share, apart from 2 issues.

(1) Share price is a bit on the high side at the moment.

(2) I'm not keen on the name. Diageo sounds like a made up name that cost thousands from a bunch of consultants. There products have old traditional names - why doesn't the company?

AleisterCrowley 10 May 2012 , 12:54pm

It is a terrible name btw, bit like Consignia & Corus

BrnzDrgn 10 May 2012 , 1:49pm

Set and Forget with these? How naive can you be.

I mean the Bradford and Bingley was a lot of peoples safe bet once.

giveusaquid 10 May 2012 , 1:52pm

There seems to be a bit of a fashion at the moment to promote the companies behind brands - P&G, Unilever, Premier Foods etc. a kind of double branding showing the product brand and the company behind the product. Which is probably quite good if you're an investor. Not sure why else they would do this.

I don't know the origins of Diageo, but stick it alongside Tesco or Hyundai and it doesn't sound so bad, the difference is that Diageo is merely the umbrella company so it isn't seen everywhere, you don't get chance to get used to it through repeat use.

Try saying Reckitt Benckiser three times after a few drinks!

eccyman 10 May 2012 , 2:00pm

re the name of DGE.

Maybe Guinness sounded terrible 100 years ago and Diageo will sound good in 100 years. But I don't like Diageo at all as a name - what'd be wrong with United Spirit Group or even Guinness?

koochak 10 May 2012 , 2:04pm

You want buy & forget? Try a couple of generalist investment trusts.

eccyman 10 May 2012 , 2:18pm

Regarding companies putting holding company on brands.

Unilever seem to put their names on all their products, but try as you might and buy as many bottles of their product as you like but youwon't find Diageos name on their products! PS you'd also never guess that Tropicana fruit juice is Pepsi..

jellycat 10 May 2012 , 3:22pm

Any recommendations on generalist investment trusts would be welcome - I'm a beginner
ta

LastChip 10 May 2012 , 3:33pm

Set and forget?

Rentokil, Marconi, Woolworth all household names and two out of the three no longer exist. The third has proven to be an appalling investment, having been over-hyped during its day by pundits.

If you want to invest and forget, stay well clear of the casino known as the stock market!

eccyman 10 May 2012 , 3:51pm

#Jellycat

Welcome to the rollercoaster of investment.

City of London Investment Trust (CTY) can be highly recommended for both beginner & experienced investor

apprenticeDRL 10 May 2012 , 3:59pm

Eccyman would that be the same as United distillers then :)

apprenticeDRL 10 May 2012 , 3:59pm

Sorry thats re name of DGE

Just realised you have made a couple of posts since

richjfool 10 May 2012 , 4:08pm

I don't know where you got your 6.4% yield for City of London Trust from Jill. Did the figures get transposed - i.e. should it be 4.6%? Even with the latest falls the yield is no more than 4.8%.

I prefer to Temple Bar, though do hold both.

Tortoise1000 10 May 2012 , 4:22pm

She is not talking about the investment trust. There are two City of Londons, it is confusing. I am surprised at the one she has picked.

goodlifer 10 May 2012 , 4:31pm

"It (buying price) matters less and less over time."
Is that really true?

Can you explain why?

gobbolino 10 May 2012 , 5:45pm

I am about to start trying to generate income from dividends. Is there a website that gives an overview of what companies are paying in dividends? Better still- is there a website that shows trends in dividend payments over the past 10 years or so?

ben345 10 May 2012 , 6:11pm

Hi
Digitallook will give you the % change in dividends, by year, in their detailed financials for the past 6 years or so (towards the bottom of the page)

You could also use their stock screen or other listings to sort by prospective dividend.

Cheers,
Ben

CatcheeMonkee 10 May 2012 , 6:56pm

gobbolino, I guess that you're across the HYP Practical board here on TMF? I'm sure I recognise your monika. http://www.dividendinvestor.co.uk/ might be of use alongside Digital Look.

koochak 10 May 2012 , 9:05pm

Jellycat, for UK-focussed: Merchants Trust (MRCH).
For global: Murray International (MYI)

I hold MRCH

amsterdamgroove 10 May 2012 , 10:15pm

What about Scottish Mortgage SMT for global? I recall Fools praising this IT in the past for low TER and strong management.

jaizan 10 May 2012 , 10:18pm

For investment trusts, go to the Citywire website & search out those with good 10 year performance.
Then check the same manager is in charge & finally check the 20 year performance on Reuters.

lootman 11 May 2012 , 12:02am

Diageo may sound like a fake name but the earlier names were also tarnished. The Guinness takeover of Distillers company was mired in controversy and conceived in fraud:

http://en.wikipedia.org/wiki/Distillers_Company

While Distillers themselves were notorious for being the UK marketer of thalidomide.

Maybe a neutral name like Diageo isn't so bad after all?

eccyman 11 May 2012 , 11:31am

Guess if Diageo run into controversy they can change it to Triageo...

goodlifer 11 May 2012 , 12:39pm

Hi again Jill,

Please help.
You say, "It (buying price) matters less and less over time."

The more I think about this, the more difficult I find it to believe.

Put case Alan and Bill each invest £1000 in Plastic Pills.
Jammy Alan gets !0% more shares for his money than thick old Bill.

Other things being equal, whether they spend their dividends or reinvest them, won't Alan always do 10% better than Bill?
For ever and ever and ever, or at least till the cows come home?

Or have I gone wrong somewhere?




newtona2 11 May 2012 , 2:00pm

Goodlifer, yes, you are right if they both only ever make one purchase, or always make purchases at the same 10% price difference.

But the point Jill is making is that over time making lots of regular purchases the absolute price of any one purchase will tend to even out as the market rises and falls, hopefully over a long period of time ending higher than the start and higher than the average purchase price.

If you only ever make the one purchase you may or may not time it right and get a great price appreciation into the future, and in practice unless the company goes bust you probably will. But will it be at the best ever price you could have got? Who knows.

For big dividend payers there is an argument that says buy them all in one go and ignore the price, which by definition will not be massive if the dividend is high enough and it's a clearly decent company. But who has all their money to invest at one go?

Unless you retire and get a lump sum, inherit some money or win a windfall, most people don't so will almost certainly be buying over time. Averaging your purchases and not trying to time the market is the point Jill is making. If your time horizon is long enough it will pretty much always work - though forgetting entirely about the purchases you have made is perhaps not a good idea as evidenced in other reply example above.

Tony

goodlifer 11 May 2012 , 3:39pm

Thank you Tony,

It's my practice to reinvest my dividend payments each month.
What do I invest them in?

There are obviously quite a few considerations, and one of them is to get as much as I can for my money.

Not really important?

TMFKipper 11 May 2012 , 3:58pm

Tony -- great answers above. Thank you. You've captured my points clearly and perhaps more eloquently! I am a fan of pound cost averaging into my best ideas, with new cash and/or dividends paid to me.

Goodlifer, it's great that you're reinvesting your dividends. What criteria do you use to determine which companies you buy or add to?

-jill

goodlifer 11 May 2012 , 9:47pm

Thank you Tony,
Hi again Jill,

"What criteria do you use?"
Nothing fancy - just the basic ones, as laid down by Great Uncle Ben, adapted slightly for different times and a different country.

For the usual, obvious reasons I stick to the LSE, and to blue or bluish chips.
I reckon a decent share is worth about 15 times earnings and not a penny more; so i don't like to pay more than about 12 times - less if I can get away with it.
As I like dividends I want a yield of at least 4%, more if I can get it.
I don't care to buy into a company I wouldn't be happy for me, or one of my family, to work for if it came to the crunch.
Unfortunately accounts are one of my many blind spots, so I check to see if the Foolish experts have anything horrible to say about debt, leverage and other things that are mostly Greek to me.

That gives me a bit of a short list of shares I feel I'm unlikely to go seriously wrong with.
Then what?

Hunch.

Will this share be still be worth owning in 10 or more year's time?

How does it fit into my portfolio? - I've got about 15 or so holdings, and I try to spread the load roughly equally, though I confess I don't take "asset allocation" as seriously as some Fools seem to think I should.

Does it look like a decent company?

And of course - what all this started with - which of those on my short list gives me the most for my money at today's prices?

I think you're a little unkind to Tony.
Eloquence - aka salesmanship aka bullshit - is best left to IFAs, fund managers, Hargreaves Lanxdown, door-to-door salesmen, politicians and the like.
In a grown-up discussion between Fools it's best to stick to facts and figures.

No time for sentiment!

TMFKipper 12 May 2012 , 9:45am

Goodlifer -- those criteria seem sound. I agree there is a bit of hunch involved.

And Tony if you're reading this, please know I was going for the more colloquial definition of eloquent (aka articulate). No offence intended and I hope none conveyed!

-jill

goodlifer 14 May 2012 , 12:36pm

"Colloquial" slang for "articulate?"
News to me.

Tony hasn't got it quite right.
He assumes that after his first trade Alan is happy to deal at carefree prices.

But, when it comes to investment, you can't - in the immortal words of Commander Queeg - assume a goddamm thing.

What if Alan is one of those fussy gits who never deals unless he gets the best possible price?
Won't his portfolio grow exponentially over Bill's?

goodlifer 14 May 2012 , 1:24pm

Meant "eloquent,"of course!

Jimi97 29 May 2012 , 7:48pm

goodlifer,

Eloquence: 'Fluent, forcible and apt use of language; rhetoric'
Articulate: 'Able to express oneself coherently'.
(Concise Oxford Dictionary, 6th Ed.)

I really do not see how you can regard attribution of eloquence as necessarily pejorative. In my opinion, most of the TMF writers are eloquent most of the time - and so they should be!

3wheelsonmywagon 05 Jun 2012 , 3:33pm

I'm not sure in the current climate that anything could be considered a 'safe' bet for 'set & forget'.

Fund managers for quality investment funds know all of the above and what's in the fool's guide and much much more besides.

I don't know why anyone would want to spend their time fiddling about with individual stocks when the grunt work can be done more effectively by other people. You'd be better off spending your time tracking where the great fund managers currently are.

And BTW - less than one third of the original 'Times top 100' companies in the first list are still in it.

jongleur100 05 Jun 2012 , 5:26pm

City of London Investment Group (CLIG) is a share (not an IT, and nothing to do with the also attractive CTY). I want to pounce on CLIG if I can get it a bit cheaper than it now is. (I'd like to see 300p or lower as an entry point, and who knows, that may be possible shortly.) I might even buy a few shares now at 350p.
http://www.digitallook.com/companyresearch/178854/City_of_London_Investment_Group/company_research.html
Its investment policy seems well-managed, though - caveat! - heavily weighted to US, with some exposure to Europe, Canada and UK.
Its yield is 6.9% rising to 7.8% in 2014. Whew.
I also hold SMT, EDIN, RCP, RICA and TEM.

Questorien 27 Sep 2012 , 8:32pm

"If you would convey truth then leave eloquence to the poets."

....Albert Einstein.

Join the conversation

Please take note - some tags have changed.

Line breaks are converted automatically.

You may use the following tags in your post: [b]bolded text[/b], [i]italicised text[/i]. All other tags will be removed from your post.

If you want to add a link, please ensure you type it as http://www.fool.co.uk as opposed to www.fool.co.uk.

Hello stranger

To add your own comment, please login.

Not yet registered? Register now.