The Motley Fool

3 Key Things a Retirement Portfolio Should Focus on

You want your retirement portfolio to be durable and, depending if you’re retired or not, generate enough income for your needs. With that in mind, here are three key things to keep in mind when building your retirement portfolio: safety, income, and growth.

Safety

You should buy businesses that you know will be around years down the road. Often, these companies provide essential products and services.

Brookfield Infrastructure Partners (TSX:BIP.UN)(NYSE:BIP) has a durable business that’s essential to the economies it operates in. Both developed and emerging markets need new infrastructure. However, enormous funding is needed, and that’s where Brookfield Infrastructure comes in.

It’s estimated that there’s a funding gap of about US$3.6 trillion in the United States over the next three years or so, a funding gap of about $200 billion in Canada over the next seven years, and a funding gap of EUR$1 trillion immediately in Europe.

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In other words, there will be no shortage of projects for Brookfield Infrastructure to work on. Because of its global reach, the company can choose the projects that offer the best risk/reward ratios.

As of the end of June, Brookfield Infrastructure has only deployed about 15% of the capital of its US$2.3 billion of capital backlog projects. It sells mature assets as a way to raise funds and invest the proceeds in better opportunities that offer higher returns. Using this method, it’s in the process of raising US$1 billion of proceeds in the near term.

Income

Brookfield Infrastructure is one of the safest businesses to invest in your retirement portfolio. Because of its long-life assets that generate increasing cash flow, it offers a safe cash distribution that it’s able to increase 5-9% per year on a per-unit basis. At US$38.73 per unit as of writing, it offers a competitive yield of 4.85%.

Brookfield Infrastructure offers a cash distribution that more than keeps pace with inflation, which helps retirees to more than maintain their purchasing power. Additionally, your investment in the company will also grow over time.

Growth

Brookfield Infrastructure has greatly outperformed its peers. Notably, TSX:BIP.UN (in blue) has outperformed NYSE:BIP (in green) likely due to a stronger U.S. dollar against the Canadian dollar.

BIP.UN Chart

BIP.UN data by YCharts

For your retirement portfolio, you should also consider having a portion, perhaps about 20% of your portfolio, to include higher-growth companies, which have double-digit growth.

For example, Alimentation Couche-Tard (TSX:ATD.B) has a proven history of delivering strong returns to shareholders, while growing its dividend per share at a high pace.

It has been growing by acquisitions and applying the best practices across its locations to improve current operations. There are still lots of acquisition opportunities available around the world, as Couche-Tard “only” has a leading position in North America and parts of Europe.

It’s estimated that Couche-Tard will grow its earnings per share by about 15% per year for the next three to five years. It will certainly translate its increasing profitability into growing dividends. The company has “only” increased its dividend per share by about 25% per year in the past decade.

Its total returns were even more impressive — a 15 bagger, or about 31% per year in the past decade. Partly, it had to do with the recession at the start of the period, which compressed the quality stock’s price-to-earnings ratio to about 12.

You’ll be excited to know that the stock is still a good value. At $66.23 per share as of writing, the stock trades at a forward multiple of about 16.3.

Investor takeaway

Both Brookfield Infrastructure and Couche-Tard are decent buying ideas for any retirement portfolio. They offer safety, income, growth and good value today. You might favour Brookfield Infrastructure more for its higher income or Couche-Tard more for its higher growth potential.

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Fool contributor Kay Ng owns shares of Couche-Tard and Brookfield Infrastructure Partners. Couche-Tard and Brookfield Infrastructure Partners are recommendations of Stock Advisor Canada.

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