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Taking trips to sunny beaches…

Enjoying fabulous food and fine wine…

Relaxing in peace and quiet in a country home…

Sports cars.

These are just a few of the things investors dream about when they look over their retirement portfolios.

Whatever your fancy, your retirement portfolio can be your key to financial freedom, and that freedom can depend on the quality of your investment decisions.

Unfortunately, there is no secret to immediate wealth, and building a successful retirement portfolio rests mainly on a savings schedule (i.e. living below your means, so you can put aside a decent amount) that can be boosted by choosing the right sort of investments.

Decisions, decisions…

Which shares you put into your portfolio depends on what type of investor you are. For example, how long do you have until retirement? How much volatility can you handle? Do you hold other asset types (bonds, property, or gold)?

However, we firmly believe that companies with healthy balance sheets, dominant market positions, and reliable cash flows should form the core of every investor’s portfolio, retirement or otherwise. The five shares discussed in this special report demonstrate all or most of these characteristics, and we think they should form an excellent foundation upon which you can then add further investments.

Getting the ball rolling…

At first glance, you might not think these five are most exciting of shares, but that’s exactly the point. We’re looking for shares that can form the heart of your portfolio — companies you can buy into and you shouldn’t have to watch every day.

We reckon that a well-diversified portfolio should have at least 15 shares, so there is plenty of room to add some riskier, more exciting shares if you so choose.

And our selection of five shares begins with a giant in the world of consumer brands…

Share To Retire On #1

Unilever

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Unilever (LSE: ULVR) boasts an impressive portfolio of brands across personal care (Lux and Dove), foods (Knorr and Hellmann’s), home care (Cif and Surf), and refreshment (Lipton and Heartbrand). In fact, it has 12 brands that can boast more than €1 billion in sales a year, and its total annual sales come to over €51 billion (note that Unilever reports in euros because of its Anglo-Dutch roots).

Unilever sells its products in 190 countries to 2.5 billion consumers every day, and over half of those sales are happening in emerging markets (a characteristic that sets Unilever apart from many of its competitors).

The company’s sales to emerging markets grew 4.6% last year, while sales in developed markets like America and Europe were flat.

A combination of advertising and innovation should keep the company’s brands prominent in consumers’ minds, and up to speed with changing tastes and needs.

For example, Unilever spends around €7 billion annually on advertising, while also spending heavily on creating new or modified products and packaging.

Unilever’s investment in its brands should also provide it with pricing power, as consumers tend to pay up for the quality that they have come to associate with their favourite products.

Unilever’s products tend to be relatively inexpensive and purchased frequently (they’re sometimes referred to as Fast Moving Consumer Goods, or FMCG), and they are sold around the world.

This should mean that, as long as the company’s brand appeal remains intact, its cash flow should be relatively resilient, regardless of economic conditions. People like to eat and shower (though generally not at the same time), even when times are tough.

The company’s focus on emerging market consumers should mean that it can also perform well when things pick up. Increased wealth and buying power in fast-growing markets should drive demand for more dishwashers and washing machines, which should create a whole new group of Unilever customers.

This steady stream of sales, and the company’s emphasis on improving efficiency wherever possible, mean the company’s closing net debt of €20.8 billion in 2018 doesn’t overly concern us.

Over the last twelve months, Unilever generated almost €5 billion in free cash flow, which easily covered its debt obligations. Reassuringly, much of the company’s debt maturities are spread out until 2033, which shouldn’t present too much of a repayment or refinancing problem.

Unilever’s dividend yield isn’t the highest around, but the company’s strong cash flow should help bolster it in times of turmoil. That said, Unilever did reduce its final dividend payment in 2009, amid the worst of the financial crisis. Its payout has recovered since, and Unilever should be able to grow it going forward.

The company rejected a $143 billion offer from the US company Kraft Heinz in February 2017. In our view, this underlines the value of Unilever’s brands and long-term prospects. With more brands than any other company in Kantar Worldpanel’s Global Top 50 Index, we expect Unilever to continue to deliver strong growth.

Share To Retire On #2

Diageo

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When building a strong core for your retirement portfolio, big can be beautiful, because large companies should have the geographic and product diversification to weather most storms. And in the spirits business, they don’t come much bigger than Diageo (LSE: DGE).

Diageo also appeals because of the relatively defensive nature of its products — people continue to buy alcohol in good times and bad, and often view it as a small luxury, and seem to be willing to splurge a bit on brand names.

Speaking of which, Diageo has lots of brand names: Johnnie Walker — the world’s number one Scotch whisky, Smirnoff, Baileys, Captain Morgan, and Guinness are just a few of the headliners among the company’s dozens of labels.

Diageo gets over 75% of its sales from spirits, and can claim two of the top five premium spirit brands in the world, as well as 22 of the top 100. The worldwide popularity of Guinness drives its beer business, which contributes 14% of annual sales.

The remainder is composed of wine and ready-to-drink beverages (a rather confusing title for pre-mixed cocktails).

Just as impressive as its brand portfolio is its global reach. Diageo’s products are sold in 180 markets around the world. Last year, Africa, Asia Pacific, and Latin America – homes to some of the fastest-growing economies in the world – accounted for around 40% of sales.

In recent years, Diageo has splashed out £1.3 billion for Mey Icki, the largest distiller in Turkey, £1.3 billion for a controlling stake in India’s United Spirits, and £280 million for Brazil’s Ypioca.

Over the past five years, Diageo has poured out £8.5 billion to promote its brands. All this activity has pushed its net debt up to £10.6 billion, but we think this looks manageable, given its £2.5 billion of free cash flow last year.

Although Diageo’s dividend yield is lower than most blue chips, its payout has been growing nicely recently. It’s up an average of 8% per year over the last five years, and 6% on last year.

The spirits industry is a rather mature one, especially in Europe and North America, but we believe that Diageo’s strong brand portfolio and growing presence in the rapidly growing emerging markets should provide it with the ability to keep growing cash flow — and its dividend — for years to come.

Adding Diageo shares to the core of your retirement portfolio could have you enjoying a little high-end tipple, when you eventually kick back and enjoy those dreamy sunsets on foreign beaches.

Share To Retire On #3

Burberry

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In our view, shares of the highest quality companies in the world should be a core component of all investors’ portfolios. We reckon that luxury apparel company Burberry (LSE: BRBY) could be just such a business.

Founded in 1856, and famous for its chequered designs (and iconic trench coat), Burberry is a premier British brand that has gone global. The company has an incredible history in designing innovative clothing. Its designs were worn by great explorers of the age like Roald Amundsen, the first man to ever reach the South Pole.

During the First World War, Burberry was commissioned by the British War Office to create an officer’s coat suitable for the conditions of modern warfare — and the iconic Burberry trench coat was born, along with its famous patterned lining, synonymous with Burberry to this day. Its designs became popular with civilians after the war, and the rest is history.

Burberry’s brand has not only endured, but evolved. Don’t be fooled by Burberry’s old-fashioned heritage — it’s one of the fastest growing brands in the world today, according to experts Interbrand, expanding quicker than rivals like Louis Vuitton, Gucci and Prada, and the brand itself is valued more richly than the likes of Hugo Boss and Ralph Lauren.

The company’s management, and its ability to bring the Burberry brand into new markets — while still generating excellent profit margins and return on capital — impresses us.

Burberry can boast global leadership in utilising technology as a means of improving retail experience and brand awareness. We see it as an organisation with innovation at the heart of its culture, a company built for the modern age. And that future might look bright for Burberry, if demographic trends continue to gradually work in its favour.

In emerging markets, consumers are becoming increasingly affluent — and Burberry has positioned itself to benefit from global growth in the future. It already generates 39% of its sales in Asia — partly driven by the 109 million Chinese households earning between $50,000 and $50,000 a year currently. The number of millionaires could rise to 2.3 million people by 2020, according to research by Credit Suisse.

Burberry has seen some management changes recently, after creative lead Christopher Bailey departed the company in 2018 and the former boss of LVMH brand Céline, Marco Gobbetti, became CEO and announced a strategy to take the brand more upmarket. The newly appointed chief creative officer, Riccardo Tisci, also packs some serious pedigree.

The new strategy could mean the company’s growth pauses somewhat for a couple of years, but we like the clarity with which the new direction has been laid out.

Admittedly, Burberry’s luxury offerings are expensive. In the event of a global downturn in consumer confidence, it’s possible that consumers around the world would delay their purchases of high-end items, or opt for cheaper brands instead. Another factor outside of the company’s control is exchange rates — which can affect the company’s reported profits from one year to the next.

We think that it’s important that Burberry keeps on top of changing consumer preferences, while remaining true to its core creative direction — not only at home, in its established markets, but abroad as well. Marco Gobbetti needs to keep moving Burberry forward as both a brand, and as a modern, global company in the years ahead.

Share To Retire On #4

InterContinental Hotels Group

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InterContinental Hotels Group (LSE: IHG) is one of the world’s leading hotel companies. Franchising is the largest part of its business – the company owns few hotels. Like all franchisors, it doesn’t provide much capital to franchisees, instead focusing on growing its royalty-fee revenues. In other words, it can grow using other people’s money.

IHG has five brands that contributed more than $1bn in gross revenue in 2018: Holiday Inn, Holiday Inn Express, InterContinental, Crowne Plaza and Kimpton. The company’s oldest brand, InterContinental, was established in 1946, while Holiday Inn, Crowne Plaza and Kimpton all boast operating histories exceeding three decades. Although these established brands helped drive most of the company’s growth last year, it has acquired new brands where it sees strong long-term growth potential.

The firm reckons its latest acquisition, Six Senses (an operator of luxury hotels, resorts and spas), provides an opportunity to grow in “some of the most prestigious leisure and resort locations in the world, right at the very top of the luxury segment”. The company paid $300m to acquire 16 hotels, but it expects it can grow to more than 60 hotels over the next decade. To us, this could prove a canny and potentially lucrative deal if expansion goes well.

In the long run, we believe emerging markets may provide the longest runway for growth. The company opened its first hotel in Mainland China in 1984 – where it continues to benefit from population growth, urbanisation and an emerging middle class. Revenue per available room (a key industry metric) grew a healthy 6% in mainland China last year.

InterContinental’s largest territory, North America (over half of turnover), has benefited from record industry demand in the US – which is driving record room occupancy. Rates increased 1.9% in North America over the last year. The travel industry tends to follow the business cycle, so while healthy demand for business and leisure travel is helping IHG deliver excellent results, we would likely see falling demand in a downturn.

But despite the severity of the last downturn in 2008-09, the company was still able to maintain its dividend. Since then, franchised hotels have become a greater part of its profit mix, which should make its profit margins more resilient. The company’s strong profitability in 2018 influenced management to lift the dividend by 10%, in addition to a $500m special dividend paid in January 2019.

In our view, IHG boasts venerable brands and is attuning its portfolio to modern tastes. Its business model is focused on franchising and managing hotels, and this has produced wonderful profit margins. Its portfolio is also well positioned in developing economies where we expect growth to pick up over the longer term – even if there will likely be inevitable ups and downs.

Share To Retire On #5

Experian

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It’s been over 100 years since the Texas oil boom kicked off a period of rapid economic expansion and creative destruction, including the advent of the first mass-produced automobile in 1903, Ford’s Model A.

You can bet that more than a few companies filed for bankruptcy after failing to reinvent themselves as new industries eclipsed the old (as any ex-buggy whip manufacturer at the time would tell you).

The pace of change in the last 100 years has been astronomical – and if it sometimes feels like technology is progressing faster than ever, that’s because it is.

According to The Economist, data has overtaken oil as the world’s most valuable commodity. It seems almost unbelievable that the information zipping through the air around us is worth more than the tangible black gold that fuels most industry, but it is.

Experian (LSE: EXPN) is probably best known for providing personal credit reports. It is the world’s largest operator of credit bureaux, helping people and small businesses access lending services. However, there are a range of new information services being built around how it handles that most precious economic input: data.

As the world’s leading information services provider, we think the company is well placed to benefit from the rapid growth in digital data in the years ahead.

Experian’s core business is its credit services division. Lenders, such as banks and car dealers, need information to make loan decisions. Experian has insights on around 1 billion people and 111 million businesses – that’s a valuable database that would prove difficult for competitors to recreate from scratch.

But while credit data is at the core of Experian’s business, the company has used its data expertise to provide a range of information-based services in high-return, fast-growing areas such as fraud prevention.

In our view, Experian’s products – which manage the risks of lending and credit, and protect against fraud – provide important functions to economies, banking systems and individuals. We think the company’s business model should prove enduring over the long term – which is the only term that we think matters.

The company’s revenues are typically recurring in nature, which has supported a dividend increase every year since it listed in 2006. Although the prospective 1.8% dividend yield is below the market average, we’re mindful that its likely stability – and the potential for consistent compounding – is an attractive quality.

Of course, a company surrounded by a wide competitive moat, boasting strong profitability, and consistent dividend increases is rarely cheaply priced. That’s the case for Experian, which trades at a lofty 23 times its expected earnings for 2020. We feel that it’s sometimes worth paying up for quality, however.

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Disclosure: The Motley Fool owns shares in Unilever, and has recommended shares of Burberry, Diageo, Experian and InterContinental Hotels Group. This report was last updated on 22nd March 2019.