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Will Google Help You Retire Rich?

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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.

Google (Nasdaq: GOOG  ) is one of those rare companies that has come to have its name define what it does. As the dominant player in online search, Google has overwhelmed competitors such as Yahoo!, becoming a hugely profitable business that continues to gather valuable data for even more future growth potential. Yet while its purchase of YouTube has pushed it toward a social-media presence, Facebook has thus far stood in its way in the social-network space. Can Google keep its edge, or has it gone as far as it can? Let's look at how Google 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 Google.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $206 billion Pass
Consistency Revenue growth > 0% in at least four of five past years 5 years Pass
  Free cash flow growth > 0% in at least four of past five years 4 years Pass
Stock stability Beta < 0.9 1.08 Fail
  Worst loss in past five years no greater than 20% (55.5%) Fail
Valuation Normalized P/E < 18 26.10 Fail
Dividends Current yield > 2% 0% Fail
  5-year dividend growth > 10% 0% Fail
  Streak of dividend increases >= 10 years NM NM
  Payout ratio < 75% NM NM
       
  Total score   3 out of 8

Source: S&P Capital IQ. NM = not meaningful; Google doesn't pay a dividend. Total score = number of passes.

With only 3 points, Google doesn't have everything that conservative investors like in a stock. Despite having a huge cash hoard, the search giant hasn't yet joined the bandwagon of dividend-paying stocks, and that's a big reason for the weak score.

Google has already achieved its first goal: nearly complete ownership of online search. With almost two-thirds of all searches coming through Google, the company leaves Microsoft (Nasdaq: MSFT  ) and Yahoo! in the dust. Google's share in the mobile market is even more commanding, with share in the mid-90% range.

The next step is for Google to expand its reach beyond search. With smartphone operating systems, the company has gotten off to a good start, as its Android operating system's market share now numbers almost half of the U.S. market, compared with about 30% for Apple (Nasdaq: AAPL  ) and its iOS. As Research In Motion (Nasdaq: RIMM  ) continues to fade, Google has an opportunity to continue picking up subscribers.

But Google doesn't always get everything right. Its foray into China was largely thwarted by censorship issues, allowing Baidu (Nasdaq: BIDU  ) to win almost by default. Meanwhile, the Google+ social network hasn't caught on as much as investors would like, as Facebook's big head-start seems to be holding up as social users stick with what they know.

For retirees and other conservative investors, Google's volatility and lack of dividend stand in the way of recommending the stock. If Google joins Apple in deploying some of its cash toward shareholder-friendly measures like a dividend, however, the stock could become more desirable very quickly.

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.

If you really want to retire rich, no one stock will get the job done. Instead, you need to know how to prepare for your golden years. The Motley Fool's latest special report will give you all the details you need to get a smart investing plan going, plus it reveals three smart stocks for a rich retirement. But don't waste another minute -- read it today.

Add Google 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. The Motley Fool owns shares of Google, Microsoft, Apple, and Yahoo! Motley Fool newsletter services have recommended buying shares of Baidu, Apple, Yahoo!, Google, and Microsoft, as well as creating bull call spread positions in Microsoft and Apple. We Fools don't 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 (2)

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 April 08, 2012, at 12:25 PM, Otterstrom wrote:

    * (inside In-Q-Tel): =>

    GOOGLE Corporation is very closely connected with govt. SURVEILLANCE agencies (overt & clandestine/covert);

    Google works closely entwined

    with DARPA, NSA, DIA, & CIA PROJECTS --

    Google has fascist tendencies and displays monopolistic arrogance.

    => In fact, Google deliberately provides ZERO Customer Service and

    has received extremely low ("terrible") ratings by several consumer organizations.

    (Google's "Search plus your world" slogan)

    "SPYW" = SPY-Ware, SPY-World

    Google execs. & behind-the-scenes players/manipulators

    also maintain a "special relationship" in bed with

    COVERT OPERATIONS and the Russian-Israeli underworld. --

    Google and Mossad follow the same motto:

    "Deception is the art of war". --

    Google corporation is NOT your "friend";

    the reality is that harmfully corrupt

    (creepy, sleazy), desperately "social",

    technically buggy, blindly obtuse, deliberately deceptive Google

    (and its insidious "all things" tentacles) is cavalierly

    and amorally seeking to exploit you,

    conduct business espionage, etc. --

    please be aware.

    =======

  • Report this Comment On April 08, 2012, at 12:41 PM, applefan1 wrote:

    Google runs YouTube which is a BIG HUGE potential copyright infringement problem because their business model is give things away for free, or let people post content for free and make money on the ad clicks. Their operating system is just flat out not being done with consistency and adequate support. Their web site is poorly designed. Go to www.google.com and press on the Android or Customer Support button. Oh wait, there is none. Case Closed. Their search is not always returning great results. Their categorization is basic at best, they don't have a wide range of search operators. Their Android apps are just real amateur and I don't think they have a really good ecosystem for the LONG term. I think Google's expansive growth already happened and now their stock value is more of a seesaw, up and down, up and down with no growth to speak of.

  • Report this Comment On April 08, 2012, at 3:12 PM, funspirit wrote:

    I disagree with the above comment. Google will grow tremendously with outstanding employees and products.

    here is an excellent column on Google + and Facebook being Google's competitive threat and why Page is concentrating so much on social

    http://www.richmakesyourich.com/2012/03/most-interesting-com...

    enjoy, it's well written too.

    I hope Google's best days are in front of them!

  • Report this Comment On April 08, 2012, at 6:30 PM, VibrantFountain wrote:

    SEARCH ENGINE DuckDuckGo (dot com)

    == works well **** ==

    The search engine DuckDuckGo ALREADY provides wonderful, holistic features,

    such as immediate KEY SIGNIFICANT background & RELEVANT

    context info. & useful insights, in addition to RELEVANT keyword search results.

    Try DuckDuckGo. (it's ALREADY delivering BETTER, MORE ACCURATE, MORE RELEVANT

    (& more MEANINGFULLY COMPREHENSIVE) search results than

    GOOGLE. If you try DuckDuckGo search engine, you will happily see.

    = GET RID OF, AVOID, DROP (insidious, unethical, arrogant, monopolistic,

    deceptive, surveillance-ops) corrupt GOOGLE Corp. ! --

    You can use DUCKDUCKGO for searching instead of Google --

    because DuckDuckGo is excellently relevant,

    wonderfully resourceful, & respectful of the user too !

    (please note: DuckDuckGo search engine

    doesn't track you

    & doesn't collect or share personal information.)

    ** Choosing to use SEARCH ENGINE DuckDuckGo (dot com)

    is YOUR BEST ANSWER. **

    -----------

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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.

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