2 stocks that could make you rich for retirement

A common goal of investors is to accumulate enough earnings to fund a prosperous retirement. Achieving this goal sometimes presents a significant challenge for growth and income investors. The fastest growing stocks tend not to pay dividends, and the more generously paying stocks tend not to grow quickly.

I say “tend to” because there are some exceptions. Investors can find dividend growth stocks that also generate enough price appreciation to match or exceed the performance of the S&P500. Two examples we will discuss today are Broadcom (AVGO -3.93%) and Innovative industrial properties (PII) (IIPR -5.07%). Let’s take a closer look at these two stocks that can make you rich in retirement.

1.Broadcom

Broadcom is a business-to-business semiconductor company. It develops custom chips for these companies. Products related to storage, wireless and wired connectivity are part of its offerings. A few years ago, it also branched out into enterprise software, a factor that could help ease concerns over chip demand. Assuming he finalizes his plan to buy the cloud systems company VMWare (VMW -2.44%)software will likely account for more than 40% of its revenue.

The company employs engineers close to its largest customers to help solve their problems. It also spent $2.5 billion in the first half of fiscal 2022 (which ended May 1) on research and development to develop products needed by customers. This factor helps give Broadcom a competitive advantage.

Retirees will also appreciate that this business model funds a generous dividend. Its current annual payout of $16.40 per share yields about 3.1% at current prices, nearly double the S&P 500 average of 1.6%.

Plus, the payout has grown rapidly since it paid its first quarterly dividend of $0.07 per share in 2010. And it continues to deliver double-digit increases, with the payout rising 14% year over year. on the other in 2022 and 11% in 2021. The company generated more than $7.5 billion in free cash flow in the first half of fiscal 2022, easily covering its $3.7 billion of ordinary and preferred dividend costs and indicates that the increases can continue.

Investors should also pay attention to the performance of the stock. The stock price is down more than 20% from its 52-week high. Yet over the past five years, the stock price has more than doubled in value, outperforming the S&P 500.

It also now trades at just 23 times earnings, well below chip stocks such as Nvidia (at a price/earnings ratio (P/E) of 47) or the software company he is considering buying, VMWare (at 32 times earnings). Therefore, its P/E ratio, dividend growth and rising share price make Broadcom a stock retirees shouldn’t ignore.

2. Innovative industrial properties

The IIP is a higher risk option for building retirement income, but one that deserves closer examination. The Real Estate Investment Trust (REIT) leases space to medical cannabis producers.

In a way, this approach gives it the best of both worlds. First of all, this is a REIT and not a “marijuana company”. Therefore, it derives revenue from the rental of space and, as a REIT, must distribute at least 90% of its revenue to shareholders. This guarantee should appeal to retirees looking for passive income.

Not only is it not subject to the restrictions of Annex I, but it also benefits from these regulations. Schedule I rules prohibit bank loans and hinder interstate commerce for cannabis companies. IIP can provide financing to marijuana businesses through its sale-leaseback program, buying their land to provide them with needed capital, then leasing that space back to its former owner to secure a steady return.

Still, IIP stock has suffered in recent months on concerns about rising risk. A class action lawsuit and a high-profile tenant default weighed on the title. The stock has lost about two-thirds of its value since November.

Certainly, the lawsuit could potentially add significant costs to the company if the courts rule against IIP. In addition, its non-paying client, Kings Garden, accounted for 8% of its base rents collected. Still, he collected around 99% of his rent in the last quarter. Fortune Business Insights also predicts a compound annual growth rate (CAGR) for the industry of 32% through 2026. Such growth could help it find replacement tenants quickly.

It should also be able to cover its dividend. At $7 per share annually, it yields about 7.9%. This payment has increased twice in the last year, an increase of 25%. And IIP can probably continue to cover this obligation. It reported $114 million in adjusted funds from operating income, a measure of its free cash flow. This covered the $85 million paid out to common and preferred shareholders.

Finally, the stock’s problems reduced its P/E ratio to just 19, from 66 in November. This low valuation and high dividend yield can make it a profitable choice for risk-tolerant investors.

Will Healy holds positions in innovative industrial properties. The Motley Fool fills positions and recommends Innovative Industrial Properties and Nvidia. The Motley Fool recommends Broadcom Ltd and VMware. The Motley Fool has a disclosure policy.

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