Investing for retirement isn’t complicated. But many savers get confused when they start planning to invest for their golden years.
The biggest challenge to overcome: how to build a passive income stream that’s good enough to meet monthly expenses during retirement. This is doable, and the most rewarding way to build your retirement income is by investing in stocks, preferably equities that pay steady dividends.
Though stocks are riskier than other asset classes, if your time horizon is long—say 20 to 30 years—then stocks offer great potential for earning higher yields. With this approach, you become a partner in a good business with the intention of holding onto your investment over the long haul. As years tick by, you collect regular dividends, re-invest that profit to buy more shares of the company and benefit from the power of compounding returns.
The challenge here is that you must be careful in selecting your stocks. Generally, if a company has a dominant position in the industry, significant free cash flow and a history of solid dividend growth, chances are it will turn out to be a good long-term investment.
Walmart Checks all the Boxes
With its massive scale, a solid balance-sheet and growing sales, Walmart (NYSE:WMT) can provide steadily growing income for a nest egg. The world’s largest retailer has an impressive track record of rewarding investors.
The company has hiked its payout every year since it began paying dividends in March 1974, placing it in the elite club of 53 S&P 500 stocks known as “dividend aristocrats.” Dividend aristocrats are companies that have a record of boosting dividends regularly for 25 years or more.
Walmart’s 45-year streak of raising its dividend shows just how serious it is when it comes to rewarding investors. History doesn’t guarantee the future performance, of course. You must be convinced that Walmart’s future business prospects are strong and that it’s well armed to defend its turf.
The biggest threat to this big-box behemoth is Amazon (NASDAQ:AMZN), which just became the second US company ever to hit $1 trillion in market cap intraday. As more consumers shift to online shopping, some analysts see a tough future for bricks-and-mortar retailers, including Walmart.
But the company's recent quarterly results show it's succeeding in changing investor perceptions about the long-term viability of its business amid the growing threat of online competition. The success of its hybrid retail model, in which its massive store network and online presence come together, shows that the retailer is on track to overcome this challenge.
While the customer traffic to its stores remains strong, Walmart’s online sales are also surging. They are forecast to grow 40% in fiscal 2019, fueled by the company’s massive investments and acquisitions to improve its digital platform. Walmart is also offering a pickup service for its online orders at 1,800 locations, targeting to expand that service to about 40% of the US population by the end of this fiscal year.
Bottom Line
For income investors, one of the most appealing reasons to pick a dividend stock is the possibility of growth in payouts. Walmart financials show that the retailer has enough growth momentum to continue with dividend hikes. In fiscal 2018, the company earned an adjusted net income of $4.42 per diluted share and declared $2.04 per share in total dividends. That amounts to a very safe payout ratio of 46%, leaving plenty of room for additional hikes.
Trading at $95 a share and with an annual dividend yield of 2.16%, Walmart is a dependable stock for generating regular income for your retirement. It’s also a great defensive stock that has a history of outperforming the broader market during times of distress, recession and war.