Are These the Ultimate Retirement Shares?

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 few weeks, I've looked at International Consolidated Airlines Group (IAG 1.69%), GKN (GKN), ITV (ITV -0.70%), Weir Group (WEIR 1.15%), and Whitbread (WTB 0.52%). Let's take a look at how each of them scored against my five key retirement share criteria (each criterion is scored out of a maximum of five):

IAG: stuck on the runway?
International Consolidated Airlines Group was formed in 2011 when British Airways and Spain's Iberia merged. So far, it has been a troubled relationship, especially in Spain, where Iberia staff have been even less happy than BA staff about the restructuring changes (read: job and pay cuts) deemed necessary by group CEO Willie Walsh to return both airlines to profitability.

Admittedly, BA was profitable in 2012, the group's first full year of trading, but its profits were canceled out by Iberia's losses, and given the airline industry's perilous record of long-term profitability, IAG's future prospects seem far too speculative for a retirement share. What's more, IAG is one of just three companies in the FTSE 100 that doesn't pay a dividend -- and with no guarantee of when this will change, IAG is definitely not a share I would consider adding to a retirement portfolio.

GKN
Engineering group GKN has built a strong business in the aviation and automotive sector. The firm's acquisition of Volvo Aero last year looked reasonably priced and should help expand its presence in the aviation industry, a key driver for earnings growth.

GKN's biggest weakness, from a retirement-investing perspective, is that dividend cuts feature too often in its recent history: The firm slashed its dividend in fiscal year 2002 and FY 2009, and its payout has yet to recover to pre-cut levels. This isn't a great reward for long-term shareholders and is especially unattractive for retirement investors. In fairness, GKN's business looks much healthier than it did prior to 2008, and it may be that the lower dividend will prove sustainable where previous payouts have not been. For me, the jury is still out on GKN, although it could be an attractive share for a retirement portfolio.

ITV
Whether or not you are a fan of ITV's mass-market commercial programming -- complete with premium-rate phone lines and text-messaging "interaction" -- there's no doubt that many millions of people are keen and have helped ITV deliver strong growth and eliminate its debts in the five years since the financial crisis broke.

The company's medium-term prospects look good, but after reviewing the company, my main concern is that it remains more dependent on advertising revenue than ITV's management would like you to think. Profits have been boosted by moving production of key programs in house, but funding for the creation of the programs is still largely supplied by advertising, with little else to fall back on should advertising rates slump.

The Weir Group
Weir Group's pumps and seals business has benefited from booming conditions in the oil, gas, and mining industries in recent years -- especially the growth of the U.S. shale industry. This has helped the company deliver an average total return of 29.9% per year over the last 10 years -- an impressive record. Although Weir has other strings to its bow, this growth has left it looking a little expensive for a retirement share with a dividend yield of 1.6% -- half the FTSE 100 average.

I like Weir's business and think it could be suitable for a retirement portfolio, but I would wait until it becomes more affordable -- something I expect may happen over the next year or so as Weir's growth slows.

Whitbread
Top-scoring restaurant and hotel operator Whitbread has been in business in the U.K. since 1720, making it one of the U.K.'s oldest companies. The firm's 2001 move out of the brewery business and into hotels and restaurants appears to have been well timed, and its share price has risen by 430% since March 2001.

Whitbread's flagship brands are Premier Inn and Costa Coffee, and both have generated impressive growth, with shareholders enjoying average total returns of 24% per year over the last 10 years. My main concern is that retirement investors might find that investing in such a rapidly growing business at a relatively late stage will result in below-average long-term returns. Whitbread's current dividend yield is just 2.4%, so any reduction in the firm's growth or dividend payout would mean that you might be stuck with an income below the FTSE 100 average for a number of years.

2013's top income stock?
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