A common goal among investors is to retire early. Clearly, a well-trodden means of doing so is to invest in companies with strong long term growth potential and which offer excellent income prospects so that cash flow during retirement is not a concern. However, finding suitable stocks can be tricky since assessing the size of a company’s competitive advantage and long term prospects is a considerable challenge.
However, companies such as Vodafone (LSE: VOD) offer excellent long term growth potential. That’s at least partly because of its ability to adapt and change to a fast-moving industry and also to changing economic circumstances. For example, Vodafone is embracing a shift in customer tastes, with more and more consumers seeking to bundle their media content through the so-called ‘quad play’ of landline, broadband, pay-tv and mobile. While Vodafone does not currently offer all of these services, it is moving towards doing so and, in the long run, its relatively low cost base and willingness to move into new product offerings should provide strong growth figures.
Furthermore, Vodafone is also adapting to a changing economic environment, with the company taking a long term view on its investments. For example, it has made multiple acquisitions in Europe at a time when asset prices are cheap so as to obtain high quality businesses at discounted prices. While in the short run this move may frustrate investors, in the long run it bodes well for Vodafone since it provides evidence that its management team is thinking beyond 2015. And, with Vodafone being expected to post a rise in earnings of 21% next year, its strategy appears to be working well in the short run, too.
Similarly, British American Tobacco (LSE: BATS) is also adapting to changes within its industry. It has launched an e-cigarette called Vype and is reporting strong demand so far. While e-cigarettes may be viewed as the future for the tobacco industry, it may be prudent, though, to not write of tobacco products just yet. Despite the health effects of smoking being well-documented for a number of years, the proportion of adults that smoke in the UK has remained remarkably steady in recent years and, with there being scope for significant price rises, the global tobacco market may prove to be more resilient than is currently anticipated.
As a result, British American Tobacco remains a strong long term buy. Its forward dividend yield of 4.4% is very appealing and, with dividends likely to grow at a strong pace in the long run, it remains an ideal retirement stock.
Although water companies may not be the most exciting of businesses in which to invest, the likes of Pennon (LSE: PNN) remain hugely appealing for retirement portfolios. Not only are they excellent income stocks, as evidenced by Pennon’s 4.3% yield, but they also have superb bid potential, too. In fact, the stability of the water industry, which suffers from far lower political risk than the electricity industry, has prompted a number of takeover attempts in recent years. And, with Pennon forecast to increase its bottom line by 8% and offering excellent earnings visibility, it would be of little surprise if bid rumours come to the fore and push the company’s share price higher.