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Will Banco Santander Brasil 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.

Europe has been in an economic crisis for years now, as debt woes have spread across the southern tier of the continent. Yet with many European companies having reached out to emerging markets in order to seek growth, international diversification has proven useful. Banco Santander Brasil (NYSE: BSBR  ) marks one such effort from a major Spanish bank, but the stock's poor performance raises the question of whether the strategy is a sound one. Below, we'll revisit how Banco Santander Brasil 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 Banco Santander Brasil.

Factor

What We Want to See

Actual

Pass or Fail?

Size

Market cap > $10 billion

$28.4 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

0.60

Pass

 

Worst loss in past five years no greater than 20%

(54.9%)

Fail

Valuation

Normalized P/E < 18

26.57

Fail

Dividends

Current yield > 2%

3.8%

Pass

 

5-year dividend growth > 10%

NM

NM

 

Streak of dividend increases >= 10 years

0 years

Fail

 

Payout ratio < 75%

110.9%

Fail

       
 

Total score

 

4 out of 9

Source: S&P Capital IQ. NM = not meaningful; Banco Santander Brasil had its U.S. IPO in October 2009 and paid its first dividend shortly thereafter. Total score = number of passes.

Since we looked at Banco Santander Brasil last year, the company has lost a point, as its payout ratio rose sharply. The stock has done even more poorly, falling about 10% over the past year.

Banco Santander Brasil is part of parent company Banco Santander's (NYSE: SAN  ) transatlantic empire, with the Spanish bank having also offered public listings for its Chilean subsidiary Banco Santander Chile (NYSE: BSAC  ) . The offerings have given the Spanish parent a chance to raise capital without having to sell its own beaten-down shares.

But Brazilian banks have had a tough year, with Banco Itau (NYSE: ITUB  ) and Banco Bradesco (NYSE: BBD  ) both having seen struggles. With the Brazilian central bank having cut interest rates sharply, private banks have had to reduce their interest rate spreads, threatening interest income and marking a major shift in thinking for a country that has traditionally had to deal with massive inflation. As Brazil's economy has slowed, default rates on consumer loans have risen, further cramping banks' bottom lines.

Still, Banco Santander Brasil may benefit from the coming boom related to the 2014 World Cup and 2016 Summer Olympic Games to be held in Brazil. If the influx of capital and infrastructure spending boosts the overall economy, then the bank should get its fair share of the positive impact.

For retirees and other conservative investors, Banco Santander Brasil is far from the safest bet on the Latin American economy. But if you want geographical diversification for your portfolio, the bank's combination of growth potential and current income may make it worth looking at as a potential turnaround candidate.

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. 

To learn about other smart investing ideas, tune into Motley Fool co-founder David Gardner's picks. Why? Because he's crushed the market by staying on the lookout for revolutionary stocks and recommending them before Wall Street catches on to their disruptive potential. If you're interested in how David discovers his winners, click here to get instant access to a personal tour behind David's Supernova service.

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


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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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12/19/2014 1:12 PM
BSBR $4.94 Down -0.01 -0.20%
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