Are These the FTSE 100's Ultimate Retirement Shares?http://www.fool.com/investing/international/2012/11/02/are-these-the-ftse-100s-ultimate-retirement-shares.aspx Roland Head
November 2, 2012
LONDON -- The last five years have been tough for those in retirement. Portfolio valuations have been hammered, and annuity rates have plunged. There's no sign things will improve anytime soon, either, as the eurozone and the U.K. economy look set to muddle through at best for some years to come.
A great way to protect yourself from the downturn, however, is to build your retirement fund with shares of large, well-run companies that should grow their earnings steadily over the coming decades. Over time, such investments ought to result in rising dividends and inflation-beating capital growth.
In this series, I'm tracking down the U.K. large caps that have the potential to beat the FTSE 100 over the long term and support a lower-risk, income-generating retirement fund (you can see all of the companies I've covered so far on this page).
Over the last week or so, I've looked at Babcock International (LSE: BAB.L ) , Smiths (LSE: SMIN.L ) , Johnson Matthey (LSE: JMAT.L ) , Rexam (LSE: REX.L ) , and Meggitt (LSE: MGGT.L ) . Let's take a look at how each of them scored against my five key retirement share criteria (scores are out of a maximum of five):
770 years can't be wrong
Indeed, longevity is an important qualification for a retirement share, given that if you are 40 years old now, you may still need your portfolio to be producing an income in fifty years' time.
Longevity is also a sign that a business has been able to consistently adapt and evolve to changing circumstances. Two companies that have done that extremely well are Smiths and Rexam. Neither one bears much resemblance to its original business, but both are continuing to grow and prosper. While Smiths' diverse engineering operations may be harder to understand than Rexam's world-class drinks can business, both could be suitable as retirement shares, thanks to their sustainable earnings growth and defensive industries.
There is something of a defense theme to this week's roundup, as one of my final two companies, Meggitt, is also heavily involved in the defense industry, which accounts for about 40% of the firm's earnings. The remainder of Meggitt's income comes from civil aerospace (45%) and energy (9%), giving it a similar profile to Rolls-Royce but at a much lower P/E. Of course, the two companies cannot be compared directly, but Meggitt has a long track record, and while it has cut its dividend a few times over the last 20 years, it usually delivers a modest increase every year -- ideal for a retirement share.