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Will MetLife Help You Retire Rich?

http://www.fool.com/retirement/general/2012/03/14/will-metlife-help-you-retire-rich.aspx

Dan Caplinger
March 14, 2012

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.

MetLife (NYSE: MET  ) is one of the best regarded insurance companies in the country. But insurance companies overall have had a lousy experience recently. Natural disasters have hit property and casualty insurers hard, while low interest rates and unreliable investing returns have hurt life insurers and other products. Can MetLife get past this challenging environment and thrive? Below, we'll take a look at how MetLife 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 MetLife.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $41.8 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 1.94 Fail
  Worst loss in past five years no greater than 20% (42.2%) Fail
Valuation Normalized P/E < 18 6.46 Pass
Dividends Current yield > 2% 1.9% Fail
  5-year dividend growth > 10% 4.6% Fail
  Streak of dividend increases >= 10 years 0 years Fail
  Payout ratio < 75% 13% Pass
       
  Total score   5 out of 10

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

With five points, MetLife gives conservative investors some but by no means all of the traits that they prefer in a stock. The insurance company finds itself on perilous ground with the Federal Reserve, suggesting that the company will have to raise more capital to make regulators happy.

MetLife offers customers a wide range of insurance products, ranging from various types of life insurance to annuities and employee benefits. But MetLife also goes beyond insurance, with a bank subsidiary that it's in the process of selling to General Electric's (NYSE: GE  ) GE Capital and one of the largest reverse-mortgage lenders left in the industry. The company has a big presence not just in the U.S. but also internationally, especially in Japan.

That Japanese exposure hurt MetLife and some of its peers after the Japanese earthquake last spring. Aflac (NYSE: