Most people under the age of 35 don’t put a lot of thought into their retirement. These people couldn’t be more misguided. The power of compounding is the best tool an investor can have.
To add some frosting to the cake – combining a tax sheltered investment vehicle with say 20, 30, or 40 years of time to grow those investments can make a young person very rich later in life. If you buy the right companies and reinvest the dividends, these companies will pile on the returns as the years slowly tick by.
There are some criteria I would use. Companies that are committed to rewarding shareholders are a must. The company must have a product or service that can endure the tests of time and its economic cycles. The company must also be financially healthy. These are some good ideas for starters.
Take comfort in this stock
Johnson & Johnson (NYSE:JNJ) is a consumer goods, pharmaceutical, and medical equipment conglomerate that operates worldwide. The healthcare sector will never go anywhere. With increasing opportunity as the population grows in volume, and in age, Johnson & Johnson is a major player in just about every healthcare industry you can think of.
Johnson & Johnson (NYSE:JNJ) is also pretty financially fit. It has a debt-to-equity ratio of only 0.2. It also has enough cash flow coming in to pay dividends, and add to its cash reserves. This healthy cash flow enables Johnson & Johnson to help itself grow through acquisitions (such as its recent purchase of Aragon Pharmaceuticals) as well as organically. Johnson & Johnson also has in house drugs in the trial phases such as Simeprevir (Hepatitis C) that can vamp up earnings if they make it to market.
Go for the (black) gold
Exxon Mobil Corporation (NYSE:XOM) is a fully integrated oil company that operates across the globe. It is the largest company in the world (if you are measuring by market cap).
Source: Yahoo Finance
Oil is a crucial energy source, and a foundation for the modern world. Oil is used to make many materials such as plastic, as well as power your car. There has been a big push over the last several years in the US to “go green”, but I wouldn’t worry. The chart below shows the estimated slow upward trend of projected oil demand across the world:
Exxon Mobil Corporation (NYSE:XOM) has shown a great stability involving its shareholder rewards over the years. Even with fluctuating earnings due to volatile oil prices, Exxon has raised its dividend annually 31 years in a row. Exxon has also been an absolute monster increasing its earnings per share 3 times, cash flow 3 times, and dividends paid twice over the last decade. S&P projects earnings to compound at 2% over the near term.
Exxon Mobil Corporation (NYSE:XOM) is also very healthy financially. Its dividends only account for a paltry 18% of cash flow per share. Exxon has about $9.5 billion in its pockets. This company is an absolute cash cow, and has plenty of room to keep that dividend moving higher. On top of that, Exxon is currently buying back about 1.2% of its shares every quarter. This will also help drive earnings per share higher moving forward.
A company such as Exxon Mobil Corporation (NYSE:XOM) doesn’t need to do anything flashy to grow moving forward. Exxon has its hands in just about every oil-rich area of the globe, and oil prices will likely continue to push higher gradually over time. Exxon will look to focus on increasing its effectiveness in exploration and production moving forward. This will enable Exxon to extract more oil from harder to reach places, as well as drive its margins higher over time.
