Recs

0

Will BlackRock Help You Retire Rich?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

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.

There's an old adage that says that when it comes to investment management companies, it pays more to invest in the companies themselves than it does to follow the advice they give and invest in the funds they offer. For BlackRock (NYSE: BLK  ) , that's certainly been the case lately, as the leading ETF provider with trillions of dollars under management has produced impressive share-price gains. But how can the company defend its turf from up-and-coming competitors? Let's revisit how BlackRock 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 BlackRock.

Factor

What We Want to See

Actual

Pass or Fail?

Size

Market cap > $10 billion

$40.1 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

4 years

Pass

Stock stability

Beta < 0.9

1.50

Fail

 

Worst loss in past five years no greater than 20%

(37%)

Fail

Valuation

Normalized P/E < 18

19.97

Fail

Dividends

Current yield > 2%

2.6%

Pass

 

5-year dividend growth > 10%

17.5%

Pass

 

Streak of dividend increases >= 10 years

3 years

Fail

 

Payout ratio < 75%

43.5%

Pass

       
 

Total score

 

6 out of 10

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

Since we looked at BlackRock last year, the company has kept its 6-point score. But the shares have soared more than 20% over the past year, including a nearly 15% gain just in January.

BlackRock is the poster child for the success of the exchange-traded fund market. Having bought the iShares line of ETFs from Barclays (NYSE: BCS  ) back in 2009, BlackRock has benefited greatly from the iShares business, counting on it as a major source of assets to manage.

BlackRock has simply dominated most of its ETF peers. Although Vanguard has held its own with its low-cost niche, State Street (NYSE: STT  ) has struggled to hold onto its No. 2 spot in the industry. Unsatisfied with its dominance, BlackRock has made moves to grow by acquisition, buying up the ETF line of European financial giant Credit Suisse (NYSE: CS  ) to give BlackRock a bigger presence on the Continent.

In its most recent quarterly report, BlackRock shattered a host of company records, including hitting the $3.8 trillion mark in assets under management and posting $690 million in GAAP earnings on $2.54 billion in revenue. Full-year 2012 results were equally impressive, and the company pushed its dividend up by 12%.

For retirees and other conservative investors, BlackRock's shares are somewhat pricey at the moment. Yet with substantial dividend increases and a promising future as the king of the ETF world, BlackRock is a reasonable choice for retirement investors looking for exposure to financials that don't carry any credit risk.

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.

Let Motley Fool co-founder David Gardner point the way to some great stock picks for your retirement portfolio. His Supernova service has found a number of interesting stocks with huge potential, and right now, you can get a personal tour of Supernova for a limited time. Don't wait; click here to get instant access right now before the offer ends.

Add BlackRock 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: 2205713, ~/Articles/ArticleHandler.aspx, 7/25/2014 8:02:43 AM

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 10 hours ago Sponsored by:
DOW 17,083.80 -2.83 -0.02%
S&P 500 1,987.98 0.97 0.05%
NASD 4,472.11 0.00 0.00%

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

7/24/2014 4:00 PM
BLK $317.36 Down +0.00 +0.00%
BlackRock CAPS Rating: ****
BCS $14.63 Down +0.00 +0.00%
Barclays PLC (ADR) CAPS Rating: ***
CS $28.76 Down +0.00 +0.00%
Credit Suisse Grou… CAPS Rating: ***
STT $71.56 Down +0.00 +0.00%
State Street Corp CAPS Rating: ****

Advertisement