3 Top Stocks to Own in Retirement

Investors planning their retirement finances should benefit from investing in relatively less-risky equities, given the higher average returns than bonds and Treasury securities. Industry leaders Walmart (WMT), Flower Foods (FLO), and Group1 Automotive (GPI) with stable dividend payouts could be solid additions to one’s retirement portfolio.

The Fed's continued loose monetary policy has affected retirees relying on periodic interest payouts on fixed-income instruments to sustain their livelihood. The third installment of the Economic Impact Payments authorized under the American Rescue Plan Act of 2021 distributed stimulus checks to eligible retirees. However, with the government currently focused on revamping the economy through infrastructure investments following disappointing second-quarter GDP results, it is unlikely that retirees will get any further stimulus assistance in the near term.

Equities have historically outperformed the bond and fixed income securities. For example, stocks have returned 9.6% annually since the Great Depression in 1929, 40% higher than bonds, which have returned 5.6% annually over this period. Goldman Sachs analysts expect the benchmark S&P 500 index to generate 6% median annualized returns over the next 10 years, with a 90% probability of outperforming bonds through 2030. Moreover, 25% of the total shareholder returns are expected to come from dividends.

Given this backdrop, large-cap companies Walmart Inc. (WMT), Flower Foods, Inc. (FLO), and Group 1 Automotive, Inc. (GPI), which possess solid fundamentals and pay stable dividends, could be wise retirement investments.

Walmart Inc. (WMT)

WMT is one of the largest retail chains operating primarily in the United States and is the largest company globally in terms of revenue. WMT is the only company in the world to generate over $500 billion in revenues consecutively over the past eight years. In addition, the company has been consistently ranked #1 on the Fortune 500 list since 2013.

WMT’s revenues increased 2.7% year-over-year to $138.30 billion in the fiscal first quarter that ended April 30, 2021. This can be attributed to a 37% rise in U.S. e-commerce sales and a 6% rise in U.S. comparative sales. Operating income rose 32.3% from the same period last year to $6.91 billion. The consolidated gross profit rate increased 104 basis points over this period.

On July 14, WMT partnered with robotics and automation company Symbotic to restructure Walmart’s traditional regional distribution network. This digital transformation of WMT’s supply chain should optimize the delivery process end-to-end.

On June 29, the company launched the first-ever private brand, analog insulin, available exclusively in WMT’s private ReliOn brand. Walmart Health and Wellness’ executive vice president Dr. Cheryl Pegus said, “With ReliOn NovoLog® insulin, we’re adding a high-quality medication for diabetes to the already affordable ReliOn line of products and continuing our commitment to improving access and lowering the cost of care.”

WMT pays $2.20 as dividends annually, yielding 1.51% on the current price. Its non-GAAP forward earnings yield stands at 3.59%, while the 3-year yield on cost is 2.43%. Analysts expect WMT’s revenues and EPS to rise 2.5% and 4.7% year-over-year to $567.45 billion and $6.26 next year. In addition, the company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in three of the trailing four quarters. Shares of WMT have gained 12.1% over the past year and 2.3% over the past five days.

WMT has an overall grade of A, which equates to a Strong Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree. The stock has a grade of A for Stability, and B for Sentiment, Quality, and Value. Of the 40 stocks in the A-rated Grocery/Big Box Retailers industry, WMT is ranked #2.

In addition to the grades I’ve highlighted, you can view WMT grades for Growth and Momentum here.

Click here to check out our Retail Industry Report for 2021

Flower Foods, Inc. (FLO)

FLO manufactures and sells packaged bakery goods across the country. The company’s supply chain comprises direct store delivery distribution, wholesale distributors, mass merchandisers, vending outlets, and a warehouse delivery system. The company has an ISS Governance QualityScore of 1, indicating minimal governance risk.

FLO’s non-retail and other sales increased 3.6% year-over-year to $277.90 million in the fiscal first quarter that ended April 24, 2021. Net income and EPS increased substantially from the negative year-ago values to $71.66 million and $0.34, respectively. Adjusted net income came in at $87.60 million, up 1.3% from the prior-year quarter.

On June 7, FLO acquired the assets of Koffee Kup Bakery, Inc., which includes three closed bakeries and brands ‘Koffee Kup Bakery’ and ‘Vermont Bread Company.’ Given the strong consumer following of the brands, this acquisition is expected to be a key growth driver for FLO.

FLO’s annual dividend of $0.84 yields 3.67% on the current price. In addition, the company increased its quarterly dividends by 5% to $0.21, paid on June 24. FLO’s President and CEO Ryals McMullian said, “That expected growth and our strong cash flow enables the company to invest strategically and enhance our business while also continuing our long history of rewarding shareholders with a growing dividend.”

FLO’s 3-year yield-on-cost of 3.77% is 48.4% higher than the industry average of 2.54%. FLO’s non-GAAP forward earnings yield came in at 4.39%. The consensus revenue estimate of $4.34 billion for next year indicates a 2.1% improvement year-over-year. FLO’s EPS is expected to increase 4.3% from the same period last year to $1.20 in fiscal 2022. In addition, the company beat Street EPS estimates in each of the trailing four quarters, which is impressive. Over the past six months, FLO has gained 2.3% to close yesterday’s trading session at $22.91.

FLO has an overall grade of B, which translates to a Buy rating in our POWR Ratings system. In addition, it has a grade of B for Value, Stability, and Quality. Also, FLO is ranked #18 out of 81 stocks in the B-rated Food Makers industry.

We have also rated FLO for Growth, Momentum, and Sentiment. View all of FLO grades here.

Group 1 Automotive, Inc. (GPI)

GPI is an automotive retail company selling new and used vehicles in the United States, United Kingdom, and Brazil. Listed #286 in the Fortune 500, the company operates 188 automotive dealerships and 242 franchises globally as of July 6, 2021.

GPI’s total revenues increased 73.6% year-over-year to $3.70 billion in the fiscal second quarter that ended June 30, 2021. This can be attributed to a 74.6% rise in new vehicle sales and an 86.5% rise in used vehicle sales. Net income rose 532.9% from the same period last year to $191 million. EPS came in at an all-time quarterly record of $10.35, up 533.9% from the prior-year quarter.

On July 6, GPI acquired nine businesses in the United Kingdom to expand its operations in the country. These acquisitions are expected to generate $300 million in revenues annually. GPI increased its quarterly dividends by 6.5% to $0.33 in the first quarter of 2021. GPI’s non-GAAP forward earnings yield of 19.48% is 242.2% higher than the industry average of 5.69%. In addition, its forward operating earnings yield and free cash flow yield of 27.85% and 22.74% are significantly higher than the respective industry averages.

Street expects GPI’s revenues to increase 17.9% year-over-year to $12.79 billion in the current year. The company’s EPS is expected to rise 32.4% from the same period last year to $23.91 in fiscal 2021. Also, GPI surpassed the consensus EPS estimates in three out of the trailing four quarters, which is impressive. GPI has gained 79.7% over the past year and 26.4% year-to-date.

GPI has an overall grade of B, which equates to a Buy rating in our proprietary ratings system. In addition, the stock has a grade of A for Value, and B for Quality. It is ranked #5 out of 25 stocks in the B-rated Auto Dealers & Rentals industry.

Click here to view additional GPI ratings for Stability, Growth, Momentum, and Sentiment.

Note that GPI is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.

Click here to check out our Automotive Industry Report for 2021

WMT shares were trading at $145.30 per share on Friday afternoon, down $0.19 (-0.13%). Year-to-date, WMT has gained 1.62%, versus a 19.10% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.


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