Now more than ever, a comfortable retirement depends on secure, stable investments. Unfortunately, the right stocks for retirement won't just fall into your lap. In this series, I look at 10 measures to show what makes a great retirement-oriented stock.
The tobacco industry in the U.S. has come under fire from federal regulators, health advocates, and local governments, making the business a dangerous one for domestic players. But overseas, the industry has faced fewer challenges, and British American Tobacco PLC (ADR) (NYSEAMEX:BTI) has sought to make the most of the favorable environment. But will the good times last? Let's revisit how British American Tobacco does on our 10-point scale.
The right stocks for retirees With decades to go before you need to tap your investments, you can take greater risks, weighing the chance of big losses against the potential for mind-blowing returns. But as retirement approaches, you no longer have the luxury of waiting out a downturn.
Sure, you still want good returns, but you also need to manage your risk and protect yourself against bear markets, which can maul your finances at the worst possible time. The right stocks combine both of these elements in a single investment.
When scrutinizing a stock, retirees should look for:
With those factors in mind, let's take a closer look at British American Tobacco PLC (ADR) (NYSEAMEX:BTI).
|Factor||What We Want to See||Actual||Pass or Fail?|
|Size||Market cap > $10 billion||$102 billion||Pass|
|Consistency||Revenue growth > 0% in at least four of five past years||4 years||Pass|
|Free cash flow growth > 0% in at least four of past five years||2 years||Fail|
|Stock stability||Beta < 0.9||0.27||Pass|
|Worst loss in past five years no greater than 20%||(30.3%)||Fail|
|Valuation||Normalized P/E < 18||21.04||Fail|
|Dividends||Current yield > 2%||3.8%||Pass|
|5-year dividend growth > 10%||15%||Pass|
|Streak of dividend increases >= 10 years||15 years||Pass|
|Payout ratio < 75%||66.1%||Pass|
|Total score||7 out of 10|
Since we looked at British American Tobacco last year, the company hasn't been able to regain either of the two points it lost from 2011 to 2012. The stock has also had only modest gains of less than 5% over the past year.