Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Author Bio
Sebastian Bowen has been a Motley Fool contributor since late 2018.
Sebastian found his passion for writing and educating others about shares and all things finance after completing his studies in political, economic and social science and enjoys bringing this passion to life at the Fool. His investment philosophy is a simple one – buying high-quality companies at prices that make sense. When he’s not researching his next investment at all hours of the morning, Sebastian enjoys classic movies and likes to unwind with a good book, newspaper or record.
Areas of Expertise
Dividend investing
ETFs
Education
Bachelor of Political, Economic, and Social Sciences (Government and International Relations), University of Sydney
Social Media
X/TwitterFavorite Investment Quote
"In the short run, the market is a voting machine, but in the long run, it is a weighing machine."
– Benjamin Graham
Published
Although I am not approaching the official retirement age of 67 any time soon, I am someone who has always invested in ASX shares with the idea that they will one day allow me to retire early. Perhaps I will hang up the proverbial boots before age 67. Perhaps I won't. But it will be nice to have the option. Not just any ASX share will do for my goals, though. It's my belief that a stock that can fund a long and comfortable retirement – a retirement stock, if you will – needs to fulfil three criteria.
Image source: Getty Images
3 things to look for in a retirement stock
Firstly, it needs to demonstrate some signs of possessing what legendary investor Warren Buffett would call a wide economic moat. This concept refers to an intrinsic competitive advantage that a company can possess, which it can use to fend off its competitors and keep its customers coming back. That could be a price advantage, a powerful and trusted brand, or offering a good or service that customers find difficult to avoid using.
Secondly, it needs to have a strong and resilient earnings base. The world is an ever-changing and unpredictable place. As an investor, we need to be as confident as we possibly can that a company we invest our hard-earned dollars into will be able to make its crust in all kinds of economic weather. After all, if a retirement is to last for two, three, or even four decades, it must be funded by companies that can navigate whatever the world can throw in their way.
Thirdly, a company must be able to pay a reliable and meaningful dividend, preferably with full franking credits attached. When the rubber hits the road on our retirement, retirement stocks need to be able to pay us an income. We can never know for sure what kind of dividend a company will pay in the future. But it's my belief that what it has paid in the past is one of the best indicators of what to expect going forward.
So, now that we have our three criteria unpacked, let's talk about five retirement stocks that I think check all three boxes.
First up, we have the grocery giant Coles. Almost all readers would be familiar with this company thanks to its dominant network of eponymous supermarkets across the country. Coles also owns the Liquorland chain of bottle shops.
Coles clearly checks all three of our selection criteria. Starting off, it arguably possesses two moats: a well-known and trusted brand, as well as a clear price advantage when it comes to food and household essentials. Most people would assume that their local Coles store is one of the cheapest places to do the weekly grocery shop, and that the products that Coles sells can't be purchased at a meaningfully lower price elsewhere.
It also has one of the most resilient earnings bases on the ASX. We all need to stock our households with food and essentials on a regular basis. That is irrespective of whether the economy is booming or busting, or whether inflation is high or low. As such, it is pretty clear that Coles will have customers walking through the door no matter the economic weather outside.
Coles also has an exceptional dividend track record. It has paid a reliable dividend every six months since it first hit the ASX in its own right back in late 2018. What's more, Coles has managed to increase its annual dividend total every single year since then too. Given this company's payouts also tend to come with full franking credits attached, I think this could be a great retirement stock.
Genafheona Tebhc (NFK: GPY)
Arkg, yrg'f gnyx Genafheona. Guvf vf n pbzcnal gung nal zbgbevfg va Flqarl be Zryobhear, naq creuncf va Oevfonar gbb, jbhyq or vagvzngryl snzvyvne jvgu. Vg bjaf gur infg znwbevgl bs guvf angvba'f gbyyrq negrevny ebnqf. Guvf va vgfrys vf rabhtu gb gvpx bhe svefg obk. N gbyy ebnq argjbex vf, ol qrsvavgvba, n sbez bs zbng, tvira gung phfgbzref svaq vg qvssvphyg gb nibvq hfvat. Guvf zbng vf jvqrarq ol gur snpg gung Genafheona bsgra rawblf rkpyhfvir, qrpnqrf-ybat pbagenpgf juvpu nyybj vg gb vapernfr vgf gbyyf ol ng yrnfg gur engr bs vasyngvba.
Gung oyrrqf vagb bhe frpbaq ergverzrag fgbpx pevgrevn gbb. Guvf rkpyhfvir evtug gb ebyy fbzr bs gur pbhagel'f zbfg ivgny ebnq pbeevqbef tvirf Genafheona n uvtuyl qrsrafvir rneavatf onfr. Fher, vg znl frr fbzr erqhprq genssvp vs gurer vf n frirer erprffvba. Ohg tvira jr jvyy nyjnlf arrq gb trg gb jbex, naq zbir tbbqf nebhaq bhe pvgvrf, Genafheona vf n fbyvq pubvpr sbe n ergverzrag fgbpx, va zl ivrj.
Guvf cynlf bhg va gur pbzcnal'f qvivqraq uvfgbel. Genafheona unf n fgnvepnfr-yvxr cnggrea bs qryvirevat qvivqraq vapernfrf bire gur cnfg gjb qrpnqrf, jvgu gur bayl znwbe uvpphcf pbzvat va PBIVQ-enintrq 2020 naq 2021.
