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.
Swiss drug giant Novartis AG (ADR) (NYSE:NVS) isn't the best-known pharma stock in the U.S., but it combines two extremely lucrative businesses under one roof, with both proprietary drug development as well as its Sandoz generic division. Can Novartis use that dual strategy to its advantage? Let's revisit how Novartis 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 Novartis.
|Factor||What We Want to See||Actual||Pass or Fail?|
|Size||Market cap > $10 billion||$165 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||0.15||Pass|
|Worst loss in past five years no greater than 20%||(6.9%)||Pass|
|Valuation||Normalized P/E < 18||23.33||Fail|
|Dividends||Current yield > 2%||3.6%||Pass|
|5-year dividend growth > 10%||10.4%||Pass|
|Streak of dividend increases >= 10 years||12 years||Pass|
|Payout ratio < 75%||63.4%||Pass|
|Total score||8 out of 10|
Since we looked at Novartis last year, the company has held its eight-point score, even as revenue and free cash flow sank last year. The stock has put in a very strong performance, rising about 25% over the past year.