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Will America Movil 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.

The mobile revolution has affected more than just U.S. investors. South of the border, America Movil (NYSE: AMX  ) has become a huge player in the mobile markets of Latin America, and it also has a U.S. presence through its Tracfone and similar prepaid offerings. But can America Movil continue to thrive even in a global economic slowdown? Below, we'll revisit how America Movil 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 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 America Movil.

Factor

What We Want to See

Actual

Pass or Fail?

Size

Market cap > $10 billion

$90.2 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

3 years

Fail

Stock stability

Beta < 0.9

0.42

Pass

 

Worst loss in past five years no greater than 20%

(50.2%)

Fail

Valuation

Normalized P/E < 18

13.61

Pass

Dividends

Current yield > 2%

1.3%

Fail

 

Five-year dividend growth > 10%

14.9%

Pass

 

Streak of dividend increases >= 10 years

7 years

Fail

 

Payout ratio < 75%

12.2%

Pass

       
 

Total score

 

6 out of 10

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

Since we looked at America Movil last year, the company has dropped a point, as free cash flow dropped for a second straight year. The stock has also had difficulty, falling just shy of breakeven over the past year.

America Movil is a Mexican company, but it has a huge operational reach, with telecom services throughout Latin America and the Caribbean. Run by Carlos Slim, who has routinely exchanged places with Bill Gates and Warren Buffett as the richest person in the world, America Movil started as a wire-line operator but has expanded strongly in mobile in recent years.

But the Latin American market is fiercely competitive. European giant Telefonica (NYSE: TEF  ) and U.S.-based NII Holdings (NASDAQ: NIHD  ) have fought for key shares of the Brazilian market, challenging America Movil's attempt to dominate the Western Hemisphere.

In response, America Movil is striking back in Europe. By taking big minority stakes in Dutch Royal KPN and Telekom Austria, the company is signaling its desire to take advantage of low valuations in Europe to diversify its holdings.

For retirees and other conservative investors, the disappointing thing about America Movil is its dividend yield. In the U.S., wireless giants AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) lead the Dow Jones Industrials with dividend yields near or above 5%, while America Movil has struggled to pay just a quarter of that level. Yet America Movil obviously has more future potential, as Verizon and AT&T do battle in a much more mature U.S. mobile market. Until dividends rise, America Movil is more of a growth play than an income-providing stock for a retirement portfolio.

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.

America Movil is trying to dominate the world from Mexico, but you can profit from our increasingly global economy without ever leaving your own backyard. Our free report "3 American Companies Set to Dominate the World" shows you how. Click here to get your free copy before it's gone.

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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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