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.
From one standpoint, cable providers like Cablevision (NYSE: CVC ) seem to be in a great position, as they already have captive customers for their TV coverage and therefore have inroads to grab up lucrative packages including Internet and voice coverage. But increasingly, people are giving up on cable in favor of Internet-delivered content. Can Cablevision navigate the switch and still keep its customers? Below, we'll revisit how Cablevision 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:
- Size. Most retirees would rather not take a flyer on unproven businesses. Bigger companies may lack their smaller counterparts' growth potential, but they do offer greater security.
- Consistency. While many investors look for fast-growing companies, conservative investors want to see steady, consistent gains in revenue, free cash flow, and other key metrics. Slow growth won't make headlines, but it will help prevent the kind of ugly surprises that suddenly torpedo a stock's share price.
- Stock stability. Conservative retirement investors prefer investments that move less dramatically than typical stocks, and they particularly want to avoid big losses. These investments will give up some gains during bull markets, but they won't fall as far or as fast during bear markets. Beta measures volatility, but we also want a track record of solid performance as well.
- Valuation. No one can afford to pay too much for a stock, even if its prospects are good. Using normalized earnings multiples helps smooth out one-time effects, giving you a longer-term context.
- Dividends. Most of all, retirees look for stocks that can provide income through dividends. Retirees want healthy payouts now and consistent dividend growth over time -- as long as it doesn't jeopardize the company's financial health.
With those factors in mind, let's take a closer look at Cablevision.
What We Want to See
Pass or Fail?
|Size||Market cap > $10 billion||$4.0 billion||Fail|
|Consistency||Revenue growth > 0% in at least four of five past years||3 years||Fail|
|Free cash flow growth > 0% in at least four of past five years||3 years||Fail|
|Stock stability||Beta < 0.9||1.47||Fail|
|Worst loss in past five years no greater than 20%||(40.6%)||Fail|
|Valuation||Normalized P/E < 18||15.75||Pass|
|Dividends||Current yield > 2%||4.0%||Pass|
|5-year dividend growth > 10%||10.7%*||Pass|
|Streak of dividend increases >= 10 years||3 years||Fail|
|Payout ratio < 75%||76.4%||Fail|
|Total score||3 out of 10|
Source: S&P Capital IQ. Total score = number of passes. * 4-year growth rate.
Since we looked at Cablevision last year, the company has had its score cut in half. The stock has also been a disappointment for investors, falling about 15% in the past year.
Cablevision has had a tough year. Between the departure of COO Tom Rutledge to take over rival Charter Communications (Nasdaq: CHTR ) , as well as the head of cable operations and its CFO, the Dolan family has been left running Cablevision largely on its own. Moreover, with the company having spun off its Madison Square Garden (Nasdaq: MSG ) and AMC Networks (Nasdaq: AMCX ) assets, what's left is a mix of businesses with questionable futures. With cable TV giving way to Internet-delivered content and many newspapers barely clinging to survival, Cablevision has many challenges to face.
So far, Cablevision hasn't done a very good job of conquering those challenges. In early May, the company reported poor cable-related earnings and said it would have to try to sell off its Clearview Cinemas unit to focus on its core business.
But as part of a consortium of sorts with Comcast (Nasdaq: CMCSA ) , Time Warner Cable, and Cox Communications, Cablevision is fighting back against telecom and satellite competitors by opening up wireless hotspots across all four providers. The idea is to form a rival national network of wireless broadband access that compares well against national networks from their competitors.
For retirees and other conservative investors, Cablevision's debt and the control of the Dolan family make the company a tough investment to evaluate. With so many reasons to think that traditional cable could be on the endangered list, it's hard to recommend the company, especially to investors for retirement portfolios.
Finding exactly the right stock to retire with is a tough task, but it's not impossible. Searching for the best candidates will help improve your investing skills, and teach you how to separate the right stocks from the risky ones.
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