Is IMI plc (IMI) the Ultimate Retirement Share?

Although analysts’ forecasts suggest IMI’s earnings growth will accelerate over the next couple of years, it’s fair to assume that it cannot maintain this level of growth indefinitely, and will eventually reach some kind of plateau. Yet under its umbrella description of fluid control, IMI’s business is surprisingly diverse, covering the oil and gas sector, renewable energy, automotive engineering, heating ventilation and air-conditioning (“indoor climate”) and retail dispensing. This diversity should help IMI adapt to future changes, if it’s successfully managed.

In financial terms, IMI plc (LON:IMI) looks very healthy, with one possible exception — a 232 million-pound pension deficit that has absorbed almost 70 million pounds of cash flow in additional funding over the last two years. Pension deficits are fairly common in U.K. companies that used to have large workforces with final salary pensions — but if IMI’s profits dip, the pension deficit could put the company’s dividend growth under pressure.

My verdict
IMI plc (LON:IMI)’s score of 21/25 is impressive, and I think that it could prove to be a very successful retirement share for longer-term investors. My main reservation is that the company’s stock appears fully priced at the moment, with a price to earnings ratio of 18.8 and a dividend yield of just 2.4%. This, combined with its pension deficit, would probably stop me investing at the current price.

If I did decide to invest in IMI at the moment, then my preferred route would be to drip-feed money into the company’s shares over a period of time, so that I could take advantage of the benefits of pound-cost averaging.

2013’s top growth stock?
Discovering shares like IMI that can outperform the wider market over long periods isn’t easy, but the Motley Fool’s analysts have found one stock that they believe is worth far more than its current valuation.

The company in question outperformed the wider market by 32% in 2012 and has continued to move ahead of the FTSE 100 in 2013. It operates a number of businesses that are household names and has been very successful at profiting from an important new technology, unlike some of its peers.

The article Is IMI the Ultimate Retirement Share? originally appeared on Fool.com.

Roland does not own shares in IMI.

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