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Will Pitney Bowes Help You Retire Rich?

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.

Many companies that built their reputations decades ago are still enduring today. One of them is Pitney Bowes (NYSE: PBI  ) , which dominated the mail services industry with its postage meters and other shipping-related equipment. But with the rise of the Internet and the fall of the U.S. Postal Service, Pitney Bowes finds itself scrambling to adjust to a new reality. Can it make the transition successfully? Below, we'll take a look at how Pitney Bowes 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 Pitney Bowes.

Factor

What We Want to See

Actual

Pass or Fail?

Size

Market cap > $10 billion

$2.8 billion

Fail

Consistency

Revenue growth > 0% in at least four of five past years

1 year

Fail

 

Free cash flow growth > 0% in at least four of past five years

2 years

Fail

Stock stability

Beta < 0.9

1.07

Fail

 

Worst loss in past five years no greater than 20%

(30%)

Fail

Valuation

Normalized P/E < 18

7.03

Pass

Dividends

Current yield > 2%

10.9%

Pass

 

Five-year dividend growth > 10%

2.8%

Fail

 

Streak of dividend increases >= 10 years

30 years

Pass

 

Payout ratio < 75%

43.4%

Pass

       
 

Total score

 

4 out of 10

Source: S&P Capital IQ. Total score = number of passes.

With just four points, Pitney Bowes doesn't have everything conservative investors prefer to see in a stock. Investors also aren't happy with the stock's performance, as the shares have dropped about 30% over the past year.

Pitney Bowes has done its best to adapt to changing conditions in the postal realm. Although Stamps.com (Nasdaq: STMP  ) has taken the lead in direct sales of online postage to consumers and small businesses, Pitney Bowes has instead focused on becoming a postage-services provider for third-party sellers. For instance, the company works with eBay (Nasdaq: EBAY  ) and earns a fee every time a seller uses its service to send a package by the U.S. Postal Service.

But Pitney Bowes isn't just about the U.S. mail. It's working with FedEx and United Parcel Service (NYSE: UPS  ) to try to capture more revenue from online shipments that bypass the USPS. More importantly, a more recent deal with Facebook (Nasdaq: FB  ) centers on supplying software for geocoding, which can help businesses pinpoint exactly where their customers are. These services need to become a bigger part of Pitney Bowes' business in order for the company to prosper.

In the end, though, the key to Pitney Bowes' appeal among investors is its double-digit dividend yield. With a substantial amount of debt on the balance sheet, many fear that a dividend cut could come soon.

For retirees and other conservative investors, Pitney Bowes has become a somewhat speculative turnaround play that lacks the stability that most people prefer in their retirement portfolios. The income looks appealing at current levels, but with recent drops in sales and free cash flow, it's hard to recommend Pitney Bowes as a retirement stock.

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.

Will Pitney Bowes thrive from its partnership with Facebook? That depends on how well Facebook can do with its own business. We've got the lowdown on that question in the Fool's premium research report on Facebook. Learn what you need to know about the social-media giant and what impact it could have on Pitney Bowes and other related businesses by picking up your copy today. Click here.

Add Pitney Bowes 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 Facebook. Motley Fool newsletter services have recommended buying shares of eBay, United Parcel Service, Facebook, and FedEx. 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.


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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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