John Wood Group PLC (WG): Is It the Ultimate Retirement Share?

John Wood Group PLC (WG)LONDON — The last five years have been tough for those in retirement. Portfolio valuations have been hammered and annuity rates have plunged. There’s no sign of things improving anytime soon, either, as the eurozone and the U.K. economy look set to muddle through at best for some years to come.

A great way of protecting yourself from the downturn, however, is by building your retirement fund with shares of large, well-run companies that should grow their earnings steadily over the coming decades. Over time, such investments ought to result in rising dividends and inflation-beating capital growth.

In this series, I’m tracking down the U.K. large-caps that have the potential to beat the FTSE 100 over the long term and support a lower-risk income-generating retirement fund (you can see the companies I’ve covered so far on this page).

Today, I’m going to take a look at John Wood Group PLC (LON:WG), a global oil, gas and power services group that employs around 43,000 people in 50 countries.

John Wood Group vs. FTSE 100
Let’s start with a look at how John Wood Group PLC (LON:WG) has performed against the FTSE 100 over the last 10 years:

Total Returns 2008 2009 2010 2011 2012 2013 YTD 10 yr trailing avg
John Wood Group (55.6%) 67.3% 83.1% (9.6%) 14.9% 19.3% 15.5%
FTSE 100 (28.3%) 27.3% 12.6% (2.2%) 10% 9.9% 8.8%

Source: Morningstar. Total return includes both changes to the share price and reinvested dividends. These two ingredients combined are what make it possible for equity portfolios to regularly outperform cash and bonds over the long term.

John Wood Group PLC (LON:WG)’s strong 10-year average total return is reassuring and its dividend payments have also risen steadily in recent years, but the company is vulnerable to shifts in the price of oil and gas and has quite volatile profits — so is it a potential retirement share?

What’s the score?
To help me pinpoint suitable investments, I like to score companies on key financial metrics that highlight the characteristics I look for in a retirement share. Let’s see how Wood Group shapes up:

Item Value
Year founded 1912
Market cap £3.0bn
Net debt $154.5m
Dividend Yield 1.7%
5 year average financials
Operating margin 5%
Interest cover 17.6x
EPS growth 9.1%
Dividend growth 13.6%
Dividend cover 13.7x

Here’s how I’ve scored John Wood Group PLC (LON:WG) on each of these criteria:

Criteria Comment Score
Longevity The company has adapted and survived for over 100 years. 5/5
Performance vs. FTSE Wood Group has beaten the FTSE for over 6 years. 4/5
Financial strength Moderate debt levels but fairly tight margins. 4/5
EPS growth Upward trend, but earnings have been volatile. 3/5
Dividend growth Solid growth since 2005. 3/5
Total: 19/25