If you are an avid and experienced investor, you would be well aware of the fact that the Australian Securities Exchange (ASX) offers perhaps one of the best vehicles of retirement financial planning. The option for investors to invest in a broad plethora of listed companies on this globally renowned exchange has been gaining good traction in the past few years. If you are just a beginner, well, we just informed you about it!
To retire rich is undoubtedly the ultimate dream and aspiration of everyone’s life. Also, the contemporary and dynamic times have taught us that keeping our money in a savings account, a locker or in our house is no longer a safe bet. Even a property provides low yields these days, few experts opine.
Rather, choosing to invest in shares/ REITs that generate good returns is the option one should look at, and leverage the many advantages of retirement investing.
Why Should You Invest In Shares To Retire Rich?
History proves that stocks produce long-term gains larger than those of any other asset class. This makes stocks much more appealing for long-term savings than treasury bonds or even the locker in your house. Let us look at a few reasons that justify the fact that investing in stocks for retirement purposes is a good option-
- The return potential of stocks gives the best chance to beat inflation over long periods of time, making them an essential part of a good retirement portfolio
- The stock mutual funds can help one to grow their retirement savings faster than say bonds or savings accounts and will continue to generate returns even when one stops working
- Stocks provide the option to plan for taxes much better
In this backdrop, we have cherry-picked four stocks, listed and trading on the ASX, that are probably suitable for a retirement portfolio.
DISCLAIMER- Please note that the below is for informative purposes only and should not be regarded as recommendations.
Altium Limited (ASX: ALU)
A multinational software corporation, Altium Limited (ASX: ALU) focuses on embedded systems development and electronic design systems for 3D PCB design. The Company’s products are available across the globe. Few of them are- ACTIVEBOM®, ActiveRoute®, Altium 365®, Altium NEXUS®, Altium Vault®, and Autotrax®.
Why is ALU a potential stock for retirement?
Besides being an exceptional technology business, ALU has been developing and growing a variety of services for engineers, off late. It is tapping every contemporary technology of the present times- Cloud Computing, Big Data, Artificial Intelligence (AI) and 5G.
ALU sets long-term revenue targets and strategically keeps a rich portion of its profit for re-investment purposes; even then its stock has been a fast-growing dividend provider. In FY19, ALU paid dividends of 34 cents, up 26% relative to FY18. In the past one year (as on 4 February 2020), ALU has generated returns of 52.87%.
The fact that it set its current strategic revenue target of $US 200 million for FY20 way back in FY16 makes shareholders more confident of ALU’s approach, organic growth, and vision.
In FY19, ALU grew revenue by 23% and net profit by 41%, registering its eighth consecutive year of double-digit revenue growth.
With its market-dominant approach, increasing subscriber list and a zero-debt balance sheet, ALU is possibly a good option for retirement investing.
Telstra Corporation Limited (ASX: TLS)
Recognized as an absolute leader in telecommunications technology, Telstra has been leading the revolutionary 5G and mobile technology in the past few years. The telco giant was one of the first companies to launch 5G globally and currently has a number of customers for the same. Recently, its T22 strategy has been gaining good traction and is expected to strip significant costs and make TLS even more efficient.
Why is TLS a good bargain for retirement?
Firstly, the T22 strategy is likely to take TLS back on the growth trajectory, which has faced disruption in recent times.
On the back of the NBN rollout, the 5G internet, and rational market competition, the outlook seems quite fair. Moreover, the company has drastically reduced its underlying fixed costs in the three years to FY19 (achieved a $1.17 billion reduction). FY20 was the single biggest year of underlying fixed cost reductions at $630 million.
On the stock front, in addition to an interim dividend paid in February 2019, TLS shareholders received a total dividend of 16 cps (fully franked) for FY19, taking the cumulative return to $1.9 billion. In the past one year (as on 4 February 2020), the stock has generated returns of 24.53%.
Wesfarmers Limited (ASX: WES)
A consumer discretionary business, Wesfarmers has grown into one of Australia's largest listed companies catering to home improvement, outdoor living, apparel, and general merchandise, office supplies and an Industrials division as well. The Company is one of Australia's largest employers with a shareholder base of nearly 484,000.
WES is expected to release its 2020 half-year results on 19 February 2020.
Why is WES a potential prospect for investment in retirement?
2019 marked one of significant change for WES, with major restructuring of the portfolio of businesses- the demerger of the Coles business (largest demerger in Australian corporate history), the sale of its interest in the Bengalla coal mine, the Kmart Tyre and Auto Service business and its investment in Quadrant Energy.
The highly diversified and well-reputed business of the Company makes it an attractive long-term investment as it provides a cushion to industry-specific challenges.
On the stock front, WES Directors declared a fully franked final dividend of 78 cps in FY19, bringing the full-year ordinary dividend to $1.78 per share. Moreover, WES shareholders received shares in Coles amounting to 85% of the company’s capital. In the past one year (as on 4 February 2020), WES has generated returns of 43.5%.
The Board considers WES to be well-positioned for future growth in its existing businesses.
BHP Group Limited (ASX: BHP)
This global resource giant is one of the top picks for investors who tap Australia’s resources sector. BHP is a diversified natural resources company and one of the world’s top producers of commodities (iron ore, coal, and copper). It also enjoys the position of being one of the largest shares listed on the ASX.
Why is BHP a good option for retirement financial planning?
In the first half of FY20, BHP delivered robust operational performances across its portfolio, offsetting the anticipated effects of natural field decline and planned maintenance shutdowns.
With six major development projects progressing well, the company continues to further advance its exploration programs in petroleum and copper. Moreover, the easing of tensions in the trade war between the US and China is a boon for the company given that China solely accounts for almost half of the world’s consumption of metals.
On the stock front, BHP is available at a P/E ratio of 16.73 and has an annual dividend yield of 5.01%. In the past one year (as on 4 February 2020), the stock has generated returns of 9.29%.
It is safe to believe that in retirement, investors must figure ways to create enough income without a job while guaranteeing that they don't outlive that income stream. Dividend-paying stocks with a reputation of being stable and providing a cushion against inflation are therefore one of the safest ways to savor retirement and reduce any external dependence.