Recs

0

Will Murphy Oil Help You Retire Rich?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

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.

Murphy Oil (NYSE: MUR  ) may not be the best-known oil company out there, but as a newly focused exploration and production company, Murphy has plenty of potential. The environment for energy stocks cooled off this year, though, as prices stopped their steady climb and headed lower. Are the best times over for the company? Below, we'll revisit how Murphy Oil 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 Murphy Oil.

Factor

What We Want to See

Actual

Pass or Fail?

Size

Market cap > $10 billion

$10.7 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

2 years

Fail

Stock stability

Beta < 0.9

1.21

Fail

 

Worst loss in past five years no greater than 20%

(47.0%)

Fail

Valuation

Normalized P/E < 18

11.38

Pass

Dividends

Current yield > 2%

2.3%

Pass

 

5-year dividend growth > 10%

12.3%

Pass

 

Streak of dividend increases >= 10 years

16 years

Pass

 

Payout ratio < 75%

31.6%

Pass

       
 

Total score

 

7 out of 10

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

Since we looked at Murphy Oil last year, the company has kept its seven-point score. But the stock hasn't gone much of anywhere, finishing roughly unchanged over the past year.

2012 marked another stage in Murphy Oil's quest toward becoming solely an exploration and production company. Having sold off its refineries to Valero (NYSE: VLO  ) and Calumet Specialty Products (Nasdaq: CLMT  ) late last year, Murphy joined a craze that saw many integrated oil players split off or sell their refinery assets. Yet even after the sales, Murphy retained some refining and other downstream assets.

Third Point hedge fund manager and activist investor Dan Loeb's decision to acquire a big stake in the oil company, however, arguably prompted Murphy to take further action. Following the same route that ConocoPhillips (NYSE: COP  ) did with Phillips 66 (NYSE: PSX  ) , Murphy said last month that it would spin off its remaining refining and distribution segment, leaving it to focus entirely on exploration and production. Shares soared in response, especially as the announcement also came with news of a $2.50 per share special dividend and a $1 billion share buyback program.

One reason for doing the spinoff now is to free up capital to expand Murphy's exploration program. Right now, the company has already developed most of its proven resources, and Murphy therefore needs to look at ways to buy more undeveloped land with promising mineral prospects.

For retirees and other conservative investors, 2013 will mark a big moment in Murphy's history. How it performs as an E&P company this year and next will define its future for a long time. Retirement investors who are willing to take on the risk that involves could be rewarded handsomely.

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.

With the swelling of the global middle class energy consumption will skyrocket over the next few decades, and long-term investors know that you want exposure to this space now. We've picked one incredible natural gas company that presents a rare "double-play" investment opportunity today. We're calling it "The One Energy Stock You Must Own Before 2014," and you can uncover it today, totally free, in our premium research report. Click here to read more.

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


Read/Post Comments (0) | Recommend This Article (0)

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.

Be the first one to comment on this article.

DocumentId: 2115636, ~/Articles/ArticleHandler.aspx, 7/29/2014 4:54:46 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 Moments ago Sponsored by:
DOW 16,912.11 -70.48 -0.42%
S&P 500 1,969.95 -8.96 -0.45%
NASD 4,442.70 -2.21 -0.05%

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

7/29/2014 4:01 PM
MUR $67.23 Down -0.28 -0.41%
Murphy Oil Corp CAPS Rating: ****
CLMT $32.46 Down -0.38 -1.16%
Calumet Specialty… CAPS Rating: ****
COP $84.71 Down -0.48 -0.56%
ConocoPhillips CAPS Rating: *****
VLO $49.85 Up +0.81 +1.65%
Valero Energy Corp CAPS Rating: ****

Advertisement