Recs

6

Is ExxonMobil the Right Stock to Retire With?

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. Let's figure out what makes a great retirement-oriented stock, then examine whether ExxonMobil (NYSE: XOM  ) has what we're looking for.

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 ExxonMobil:

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $407 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 3 years Fail
Stock stability Beta < 0.9 0.68 Pass
  Worst loss in past five years no greater than 20% (13.1%) Pass
Valuation Normalized P/E < 18 13.2 Pass
Dividends Current yield > 2% 2.2% Pass
  5-year dividend growth > 10% 8.8% Fail
  Streak of dividend increases >= 10 years 28 years Pass
  Payout ratio < 75% 30.4% Pass
       
  Total score   8 out of 10

Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.

As the stock with the world's biggest market cap, ExxonMobil holds a lot of appeal to safety-seeking retirees. And with a score of 8 out of 10, the oil giant rates pretty well in giving investors the stability, value, and dividend strength they're looking for.

Of course, when it comes to solid energy stocks, ExxonMobil isn't the only game in town. ConocoPhillips (NYSE: COP  ) and Chevron (NYSE: CVX  ) aren't quite as big as ExxonMobil, but they both have more attractive dividend yields, while trading at cheaper valuations. But ConocoPhillips suffered nearly a 40% loss in 2008, which no retiree on a fixed income would enjoy.

On the other hand, don't deceive yourself into considering ExxonMobil invulnerable. Many would have thought the same of BP (NYSE: BP  ) before the Gulf disaster. BP had to cut its dividend, putting retirees who counted on it in a bind.

Nevertheless, with a Dividend Aristocrat's history of stable, growing dividends, ExxonMobil is a great choice for a retiree looking for a solid stock. It isn't flashy, but barring a BP-like calamity, ExxonMobil should get the job done.

Keep searching
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.

Add ExxonMobil to My Watchlist, which will aggregate our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. Chevron is a Motley Fool Income Investor pick. The Fool owns shares of ExxonMobil. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 01, 2011, at 4:51 PM, JimmyDoors wrote:

    Using BP -- the most dangerous, unsafe oil company operating in North America -- to prove Exxon's "vulnerability" is like saying western democracies are a failure because they once produced a Hitler..... BP's HUNDREDS OF MAJOR OSHA VIOLATIONS compare horribly to the rest of the companies in the industry, which together may have fifteen or twenty. ExxonMobil ? They have ONE..... The major problem with the Gulf was the deregulation by the Bush Administration coupled with the decades of mismanagement by the Minerals Management Service. Once those two problems are fixed, the Gulf should be reopened, to ANYONE BUT BP.

  • Report this Comment On February 01, 2011, at 5:31 PM, TEBuddy wrote:

    Acquiring XOM at $60 was one of my better decisions. I really did not see if climbing as fast as it has even though I believe it is still undervalued. A true American production company, employing countless Americans and paying large taxes to states and the federal government. I think the stock should be somewhere in the low $90s by the end of 2Q11.

  • Report this Comment On February 01, 2011, at 7:15 PM, Jargeau wrote:

    My husband worked for Mobil for years and accumulated many shares. These shares are now bringing us a most welcomed income. And, I might add, while the shares dipped and we lost money on paper, the dividends have been higher every time we receive them. No complaint. We kept all of them and now, on paper, we are recouping all we had lost. Stick with Exxon stock!!!

  • Report this Comment On February 01, 2011, at 11:27 PM, wjcoffman wrote:

    "But ConocoPhillips suffered nearly a 40% loss in 2008, which no retiree on a fixed income would enjoy."

    Assuming you're referring to a loss in stock price (vice dividend) why does a retiree care? Aren't they interested in the dividend since they're on a fixed income (which implies they're after the dividend)?

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1433531, ~/Articles/ArticleHandler.aspx, 10/25/2014 6:37:30 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

Today's Market

updated 21 hours ago Sponsored by:
DOW 16,805.41 127.51 0.76%
S&P 500 1,964.58 13.76 0.71%
NASD 4,483.72 30.92 0.69%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2014 4:01 PM
BP $42.17 Down +0.00 +0.00%
BP p.l.c. (ADR) CAPS Rating: ****
COP $70.07 Up +0.07 +0.10%
ConocoPhillips CAPS Rating: *****
CVX $115.91 Down -0.28 -0.24%
Chevron CAPS Rating: *****
XOM $94.49 Up +0.38 +0.40%
ExxonMobil Corp CAPS Rating: ****

Advertisement