When it comes to choosing companies for your retirement portfolio, I think it’s best to stick with high-quality growth stocks with robust track records of producing returns for investors alongside a durable competitive advantage — businesses like Dechra Pharmaceuticals (LSE: DPH).
Dechra is a relatively unique business. It is one of the world’s largest producers of veterinary medicines, a highly specialist but booming market. Over the past six years, the company’s sales have grown at a compound annual rate of 20%, while earnings per share have surged from just 18p in 2014 to an estimated 98p for 2020. The dividend to shareholders has more than doubled over the past six years.
I think this trend is going to continue. People are willing to spend more and more on their pets, and they’re not willing to accept just any old pharmaceutical products. Vets and consumers want the highest quality products.
What’s more, Dechra’s products are protected by patents, and it is spending £25m every year in research and development to stay ahead of its competitors (R&D has increased in line with sales over the past five years).
City analysts are expecting earnings growth of 64% in 2020 and 12% for 2021. The stock currently supports a dividend yield of 1.3%.
JD Sports Fashion (LSE: JD) is another investment I think could help you build a million-pound pension pot. In my opinion, this is one of the best-run businesses on the market.
Sales have increased at a compound annual rate of 31% over the past five years and, during the past 10 years, the stock price has risen from around 10p to 746p at the time of writing, a compound annual return of 54%.
JD Sports has been particularly successful in attracting young, wealthier consumers, and it’s just starting to expand in the United States. Last year, it bought the Finish Line shoe store chain for £400m in this market and the benefits are already starting to show through.
Net profit is expected to expand at a double-digit rate for the next two years and, considering the company’s growth track record, I reckon it’s highly likely growth won’t stop there. JD Sports seems to have cracked the code when it comes to sports/casualwear retailing. I reckon the firm can repeat the success it has had over the last decade in the next.
My last retirement millionaire-maker is the internet security business Avast (LSE: AVST). According to various sources, the size of the global internet security market is expected to hit around $250bn by the middle of the next decade. Avast is well-positioned to grab a significant share of this market as one of the primary providers of antivirus software for the personal and small business market.
This growth suggests that even if Avast doesn’t grow its market share, sales have the potential to expand at an annual rate of 10-11% for the foreseeable future. Because the company’s operating profit margins are nearly 40%, this growth should drop straight to the bottom line.
The stock might look expensive as it’s currently trading at a forward P/E of 17.8, although considering the market available to the company and the projected growth in demand for internet security software over the next five years, I think this is a price worth paying.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.