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
Today, I'm going to take a look at Marks & Spencer Group
Fashion and food
Marks & Spencer's mixture of food and clothing has served it well over the years, but there's no doubt that it's struggling in the fashion department at the moment. This has been reflected in its financial results over the last few years, as it has failed to outperform the FTSE 100:
|
2007 |
2008 |
2009 |
2010 |
2011 |
Trailing 10-Year Average |
|
|---|---|---|---|---|---|---|
|
Marks & Spencer Total Return |
(19.1%) |
(57.6%) |
94.2% |
(4.3%) |
(11.1%) |
3.9% |
|
FTSE 100 Total Return |
7.4% |
(28.3%) |
27.3% |
12.6% |
(2.2%) |
6.8% |
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.
M&S has recently appointed a new style director and replaced the director responsible for the company's clothing ranges. But will it be enough to lift the company's total returns above those of the FTSE 100?
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 Marks & Spencer shapes up.
The basics
|
Year Founded |
1894 |
|
Market Cap |
5.7 billion pounds |
|
Net Debt |
2.1 billion pounds |
|
Dividend Yield |
4.8% |
Five-year average financials
|
Operating Margin |
9.7% |
|
Interest Cover |
6.8 times |
|
EPS Growth |
(1%) |
|
Dividend Growth |
4.4% |
|
Dividend Cover |
2.1 times |
Sources: Morningstar, Digital Look, Marks & Spencer.
Here's how I've scored Marks & Spencer on each of these criteria:
|
Criteria |
Comment |
Score (out of 5) |
|---|---|---|
|
Longevity |
Another British name with more than 100 years of trading. |
5 |
|
Performance vs. FTSE |
Neither great nor consistent. |
3 |
|
Financial Strength |
Margins are always under pressure, but interest cover is strong. |
3 |
|
EPS Growth |
Needs to do better -- its products are the problem. |
2 |
|
Dividend Growth |
A decent yield means that matching inflation is acceptable. |
4 |
|
|
|
Total: 17/25 |
Marks & Spencer has some serious work ahead of it to regain the edge in the high-street fashion stakes. Its score of 17 out of 25 highlights the potential of this stock, but it hasn't delivered properly for some years, and clothing sales were down more than 5% in the first quarter of the current financial year.
Expert selections
Marks & Spencer won't be on my retirement portfolio shopping list, but I do already own some of the great dividend-paying shares picked by City fund manager Neil Woodford, who manages 20 billion pounds of private investors' money in his funds. Neil Woodford's dividend stock picks have outperformed the wider index by a staggering 305% over the last 15 years, and you can learn about his top holdings in this free Motley Fool report. I strongly recommend you download "8 Shares Held By Britain's Super Investor" today, as it is available for a limited time only.
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