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Is John Wood Group the Ultimate Retirement Share?

By Roland Head - Apr 22, 2013 at 7:43PM

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Will shares in John Wood Group help you build a FTSE-beating retirement fund?

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 of things improving 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 of protecting yourself from the downturn, however, is by building 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 the companies I've covered so far on this page).

Today, I'm going to take a look at John Wood Group (WG -0.56%), a global oil, gas and power services group that employs around 43,000 people in 50 countries.

John Wood Group vs. FTSE 100
Let's start with a look at how Wood Group has performed against the FTSE 100 over the last 10 years:

Total Returns






2013 YTD

10 yr trailing avg

John Wood Group








FTSE 100








Source: Morningstar. Total return includes both changes to the share price and reinvested dividends. These two ingredients combined are what make it possible for equity portfolios to regularly outperform cash and bonds over the long term.

Wood Group's strong 10-year average total return is reassuring and its dividend payments have also risen steadily in recent years, but the company is vulnerable to shifts in the price of oil and gas and has quite volatile profits -- so is it a potential retirement share?

What's the score?
To help me pinpoint suitable investments, I like to score companies on key financial metrics that highlight the characteristics I look for in a retirement share. Let's see how Wood Group shapes up:



Year founded


Market cap


Net debt


Dividend Yield


5 year average financials


Operating margin


Interest cover


EPS growth


Dividend growth


Dividend cover


Here's how I've scored Wood Group on each of these criteria:





The company has adapted and survived for over 100 years.


Performance vs. FTSE

Wood Group has beaten the FTSE for over 6 years.


Financial strength

Moderate debt levels but fairly tight margins.


EPS growth

Upward trend, but earnings have been volatile.


Dividend growth

Solid growth since 2005.


Total: 19/25


Wood Group has grown strongly over the last five years and shareholder returns were boosted in 2011 by a £1.1 billion return of cash, following the sale of the company's Well Support division to GE. The scheme was executed through a tender offer, rather than a special dividend, but shareholders participating in the scheme will have seen a substantial cash return in addition to their regular dividend payments.

However, despite a 5-year average dividend growth rate of 13.6%, Wood Group's forecast dividend yield of 1.7% is far lower than that of its sector peers Amec, which offers a prospective yield of 4.1%, and Petrofac, which offers a potential 3.6% yield. All three companies trade on similar forward price to earnings (P/E) ratios and are of a similar size, making Wood Group less attractive as a potential retirement share, despite its strong performance history.

My verdict
Wood Group is a high quality company with a strong track record of profitable growth. However, as a retirement share, it would provide a dividend income substantially below its sector average, making it look relatively expensive compared to Amec and Petrofac, its two main U.K.-listed peers. Both of these companies also have net cash positions, which compare favourably to Wood Group's $154 million net debt.

Finally, if you're interested in investing in an oil services company as part of a diversified retirement portfolio, you should remember that these companies would be vulnerable to a sustained drop in oil prices, so their performance is likely to be correlated with that of oil supermajors such as Royal Dutch Shell and BP.

2013's top income stock?
The utility sector is known for its reliable, above-average dividends, but the Motley Fool's team of analysts has identified one FTSE 100 utility share that they believe offers a particularly high-quality income opportunity.

The company in question offers a 5.7% dividend yield and the Fool's analysts believe that it could be worth up to 850p per share -- offering new investors a potential 20% gain on the current share price of around 700p.

Indeed, the Motley Fool's analysts are so confident in this share that they've named their report "The Motley Fool's Top Income Stock for 2013"! This exclusive new report is completely free, but will only be available for a limited time -- so click here to download your copy now.


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Stocks Mentioned

John Wood Group PLC Stock Quote
John Wood Group PLC
$250.30 (-0.56%) $-1.40

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