Are Croda International and Hammerson the Ultimate Retirement Shares?

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 all of the companies I've covered so far on this page).

Over the last few weeks, I've looked at Hammerson  (LSE: HMSO  ) , Croda International  (LSE: CRDA  ) , TUI Travel  (LSE: TT  ) , London Stock Exchange Group  (LSE: LSE  ) , and Resolution Limited  (LSE: RSL  ) . Let's take a look at how each of them scored against my five key retirement share criteria:

Criteria

Resolution

TUI Travel

Hammerson

London Stock
Exchange

Croda
International

Longevity

2/5

2/5

4/5

4/5

4/5

Performance vs. FTSE

2/5

4/5

2/5

4/5

5/5

Financial strength

3/5

3/5

4/5

4/5

4/5

EPS growth

2/5

3/5

3/5

4/5

4/5

Dividend growth

4/5

4/5

3/5

4/5

5/5

Total

13/25

16/25

16/25

20/25

22/25

Resolution
Resolution is an investment company that's decided to turn itself into an insurance firm. Originally established with the goal of buying several life insurance businesses, combining them, and floating them for a big profit, market conditions have forced Resolution's management to abandon this idea and settle for running an insurance company.

Although Resolution's 7.7% dividend yield is the highest in the FTSE 100, its short history, and the challenges it faces in combining and operating the three life insurance businesses it has acquired since 2008, deter me from adding it to my retirement portfolio.

TUI Travel
Another firm with a short history in its current form is TUI Travel, which operates travel brands including Thomson, Crystal Ski, and LateRooms.com. The company was formed when TUI Tourism and First Choice merged in 2007.

Early signs are that this might be a successful marriage, but the mass-market travel industry competes very heavily on price and has wafer-thin margins. TUI's brands are attractive, but identical products and services are available from other operators, making it hard for TUI to pass on price increases. TUI is not one for my retirement portfolio, although its 3.8% dividend yield is acceptable enough.

Hammerson
Hammerson is a real estate investment trust (REIT) with a 5.5 billion-pound portfolio of retail parks and shopping centers in the U.K. and France. It offers a 3.7% forecast yield and currently trades at around 95% of its book value, having risen since I wrote my review. Despite this, I think that my 16/25 score underestimates Hammerson's potential as a retirement share.

Although the retail sector may be going through a lackluster patch at the moment, over the long term, large-scale ownership of prime retail property should be a good way to generate an inflation-linked income -- and as a REIT, Hammerson will always be required to pay out 90% of taxable income as dividends.

London Stock Exchange Group
A large part of the London Stock Exchange Group's income comes from providing data services to financial firms, as well as operating the main London and Italian markets. Both businesses have high barriers to entry, which enables LSE Group to charge premium rates -- its operating margin for the first half of its current financial year was an enviable 44%.

LSE Group is gradually expanding its business to make it more defensible, and I think it could be a good retirement share, thanks to the near-monopoly nature of much of its business. However, the firm's share price has already risen by 20% so far this year, and only offers a forecast yield of 2.4%, which means I might leave it on my watchlist for now.

Croda International
Chemicals firm Croda makes a wide range of products, many of which are proprietary and very profitable. Its consumer care (cosmetics and skin care) division is the key to this success and generated 73% of Croda's operating profits in 2012. Croda should benefit from rising disposable incomes in emerging market economies, and could continue to grow steadily for some years.

Croda's dividend has risen every year since 1993, which has persuaded me to add it to my watchlist, as its average yield of 3.2% could become very attractive if its share price dips for any reason.

The best FTSE 100 dividends?
I believe that three of the five companies I've discussed above are potential retirement shares, but they only offer fairly average dividend yields and there may be more attractive, high-yielding alternatives elsewhere in the FTSE 100.

Indeed, I can tell you that none of the five shares above were chosen by The Motley Fool's team of analysts for their latest special report, "5 Shares to Retire On." The Fool's in-house experts have crunched the numbers on every company in the FTSE 100 and identified five of the best blue-chip dividend shares in the U.K. I believe that this should be essential reading for anyone aiming to build a diversified income portfolio for their retirement.

If you would like to know more, click here now to download your copy of this report -- it's free, but availability is strictly limited, so don't delay.

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