Although the stock market tends to rise over the long term, Wall Street’s year-to-year performance can be something of a bust, as 2022 showed. The Dow Jones Industrial Average, S&P 500and Nasdaq Composite all fell into a bear market last year and posted their worst returns since the 2008 financial crisis.
While stock market downturns are known to weigh on public emotions, they are surefire opportunities for patient investors to get stakes in time-tested businesses at low cost.
Bear markets can be a particularly good time for retirees to put some of their money to work. Keep in mind that there are smart ways for retirees to invest their money without significant risk to their principal. What follows are three time-tested stocks that have the potential to double retirees’ money, including dividends paid, over the next five years.
Enterprise Product Partners
If there’s one thing retirees like, it’s a stable income stock with below-average volatility that will put historically high inflation in its place. I give you a supply of energy Enterprise Product Partners (EPD 0.04%), which yields 7.4% and has increased its base annual distribution over the past 25 years. That payout alone would put retirees more than a third of the way to doubling their money in five years.
Admittedly, some retirees won’t be thrilled with the idea of putting their money into the oil and gas industry. During the initial stages of the COVID-19 pandemic, we witnessed a historic decline in demand for energy commodities, which completely depleted drilling stocks. That memory is still fresh in investors’ minds.
Enterprise Products Partners, however, operates in what is perhaps the most secure niche within the energy complex: the midstream. Enterprise owns and operates more than 50,000 miles of transmission pipeline; can store 14 billion cubic feet of natural gas and 260 million barrels of oil, natural gas liquids (NGLs) and refined products; and has 20 deepwater docks processing NGLs. In practice, it is an energy mediator.
The advantage of being an energy intermediary can be seen in the contracts that Enterprise Products Partners signs with upstream drilling companies. Specifically, it enters into long-term, fixed-fee contracts that remove spot price volatility from the equation and generate highly predictable cash flow. The predictability of cash flows year after year is what gives management the confidence to make acquisitions and spend billions of dollars on new gas and gas projects.
Another testament to Enterprise’s incredible payout is its distribution coverage ratio (DCR). DCR represents the amount of distributable cash flow from operations over what it actually pays out to its investors. A DCR of 1 or less would indicate an unsustainable payout. Enterprise Products Partners’ DCR has never fallen below 1.6 during the pandemic.
With about a dozen major infrastructure projects slated to come online by mid-decade, annual revenue growth of 5% (or slightly more) is expected here. That makes triple-digit total returns by 2028, including dividends paid, a very real possibility.
Walgreens Boots Alliance
A second time-tested stock that could deliver 100% total return for retirees over the next five years is the pharmaceutical giant Walgreens Boots Alliance (WBA 0.90%). Walgreens offers an inflation-fighting 5.3% yield and has increased its annual payout for 47 consecutive years. That dividend alone will put retirees more than a quarter of the way to doubling their money in five years.
The reason Walgreens Boots Alliance is such an amazing deal is because of Wall Street’s short-sightedness. Because it generates most of its revenue from its brick-and-mortar locations, the drop in foot traffic during the COVID-19 pandemic has hurt its operating results. However, with the worst of the pandemic likely over, the company’s numerous strategic initiatives could flourish and deliver results for patient shareholders.
Probably the biggest change introduced by Walgreens is the increased emphasis on health services. Partnered with and invested in VillageMD, aiming to open 1,000 full-service health clinics in over 30 U.S. markets by the end of 2027. These VillageMD clinics are staffed by physicians, which should encourage repeat patient visits and improve loyalty at the mass level.
As I noted earlier this week, Walgreens Boots Alliance is also aggressively investing money in various digitization initiatives. This includes revamping the supply chain to reduce inventory costs as well as building an online presence. While it will continue to generate most of its sales in its stores, the pandemic has taught management the importance of online sales and convenience. There’s no reason Walgreens can’t continue to grow its annual digital sales by double-digit percentages.
Walgreens is more careful about its costs and balance sheet. The company has reduced its annual operating costs by more than $2 billion without affecting its digitization initiatives or health clinics. In addition, his wholesale drug business was sold to AmerisourceBergen for $6.5 billion, which helped reduce its debt load and improve its financial flexibility.
If Walgreens can grow its bottom line modestly over the next five years, it should have no trouble generating triple-digit total returns at a current price-to-earnings ratio of less than 8.
The third time-tested stock that could help retirees double their money over the next five years doesn’t currently pay a dividend, but could very well resume its payout at some point in the coming quarters. I am talking about the famous “House of Mouse”, Walt Disney (DIS 0.84%).
For nearly three years, Walt Disney’s operating results were adversely affected by the pandemic. Lockdowns in various parts of the world have hurt the company’s theme park operations, while reduced capacity in movie theaters has affected movie entertainment revenue. While COVID-19 is not gone, the worst of its impact on economic activity appears to be over. In other words, retirees have the green light to take a position at one of America’s truly iconic businesses.
One of the reasons Disney is such a special company is its uniqueness. Of course, there are other theme park operators, movie studios and content creators. But no other company can bridge generational gaps and connect with consumers on an emotional level like Disney can with its theme parks, movies, original shows and characters. It’s incredibly difficult to build a moat in the media space, but Walt Disney did just that.
To add to that, few companies offer the pricing power that Disney can bring to the table. Since Disneyland opened in Southern California in 1955, the actual rate of inflation in the US has risen by about 1,000%. Meanwhile, the price of admission to Disneyland rose 10,300% (from $1 to $104) during the same period. Despite the increase in ticket prices at 10 times the rate of inflation, the number of visitors to the park increased over time. This is a reflection of the incredible strength of the company’s brand.
Expect the company’s streaming services to play a key role in its growth over the next few years. In less than three years since its launch in November 2019, Disney+ has amassed 164.2 million subscribers. If Hulu and ESPN+ are also added, Disney has more streaming subscribers than Netflix. The introduction of a moderately cheaper, ad-supported tier, as well as raising the monthly prices of its ad-free streaming services, should allow Disney to push its streaming segment to profitability over the next two years.
If Walt Disney can successfully shake off near-term uncertainty and regain its luster, sustainable annual earnings growth of between 10% and 15% is possible through 2027. That would put its stock price doubling within the realm of possibility five years from now .