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.
As the company with the biggest market capitalization in the Dow Jones Industrials Average by a wide margin, Exxon Mobil Corporation (NYSE:XOM) has a commanding presence over the oil industry and the entire U.S. stock market. But despite its size, Exxon can't change a basic rule of the energy industry: Once you take oil out of the ground, it becomes increasingly difficult to get as much production from the same wells. Can the oil giant get over declining production trends by capitalizing on new opportunities? Below, we'll revisit how ExxonMobil 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 ExxonMobil.
|Factor||What We Want to See||Actual||Pass or Fail?|
|Size||Market cap > $10 billion||$397 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||3 years||Fail|
|Stock stability||Beta < 0.9||0.51||Pass|
|Worst loss in past five years no greater than 20%||(13.1%)||Pass|
|Valuation||Normalized P/E < 18||8.80||Pass|
|Dividends||Current yield > 2%||2.6%||Pass|
|Five-year dividend growth > 10%||9.7%||Fail|
|Streak of dividend increases >= 10 years||30 years||Pass|
|Payout ratio < 75%||22%||Pass|
|Total score||8 out of 10|