Are These the Ultimate Retirement Shares?

LONDON -- The past five years have been tough for those in retirement. Portfolio valuations have been hammered, and annuity rates have plunged. There's no sign that 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 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 all of the companies I've covered so far on this page).

Over the past few weeks, I've looked at Tate & Lyle (TATE 1.13%), easyJet (EZJ 1.21%), IMI (IMI -1.04%), Bunzl (BNZL 0.34%), and Sage Group (SGE -1.72%). Let's look at how each of them scored against my five key retirement share criteria:

easyJet
The easyJet brand needs no introduction, and its progress from start-up to FTSE 100 firm over just 32 years remains impressive. However, I wasn't convinced of its merits as a retirement share, as its constant expansion is placing demands on its cash flow that it may struggle to meet without sacrificing its below-average dividend or loading up on debt. easyJet's youth also deterred me, leading me to conclude that there are better opportunities for elsewhere in the FTSE 100.

Tate & Lyle
One such opportunity might be sweetener supremo Tate & Lyle. The company no longer owns its sugar business and is using its bulk ingredients business -- which produces high-fructose corn syrup and other modern food-industry staples -- to help grow its higher-margin specialty ingredients business. This strategy appeals to me and should help widen the company's moat, while Tate's 138-year history and its solid record of dividend growth are also reassuring.

Tate's latest trading update, which was published last week, confirms that performance is likely to be in line with expectations this year, despite the impact of the strengthening dollar and last year's U.S. drought, which affected the corn crop.

IMI
Engineering firm IMI impressed me with its strong track record of growth and its 150-year heritage. Its area of expertise is "fluid control," and its customers include the oil and gas industry, the renewable-energy industry and the automotive sector, as well as a separate division dealing with retail beverage dispensing. I was slightly concerned about IMI's 232 million-pound pension deficit, but I don't see this as a deal-breaker for the firm, given its modest net debt of 144 million pounds -- although any slippage in profits could mean that dividend growth, which has averaged 10% over the past five years, starts to slow.

Bunzl
Bunzl's business is based on supplying a vast range of products, such as cleaning supplies, food packaging, and disposable gloves, to businesses around the world. Its biggest market is the U.S., which accounted for 54% of group revenue in 2012, while continental Europe and the U.K. each accounted for around 20%. Bunzl has delivered steady growth organically and through small acquisitions, and the strengthening recovery of the U.S. economy may help Bunzl continue to perform ahead of the FTSE 100. The firm's dividend has risen every year for at least the past 20 years, and it could make an excellent retirement share, but it isn't cheap.

Sage Group
Sage is known to small-business owners and accountants all over the world as the provider of market-leading bookkeeping software. Its business has expanded from this original remit and now includes a much wider range of business processes, such as payroll and resource planning. Sage's goal is to make its software an integral part of its customers' businesses, rather as Microsoft has done with Windows, Office, and Outlook.

Sage's high profit margins and strong cash flow cover for its dividends impressed me, while its 7.7% five-year average dividend growth rate means that shareholder payouts have stayed ahead of inflation.

The best FTSE 100 dividends?
I believe that four of the five companies I've discussed are potential retirement shares, but several have below-average dividend yields, and there may be more attractive, high-yielding alternatives elsewhere in the FTSE 100.

Indeed, I can tell you that none of the five shares above was chosen by The Motley Fool's team of analysts for their latest special report, "5 Shares to Retire On." The Fool's in-house experts have crunched the numbers on every company in the FTSE 100 and identified five of the best blue-chip dividend shares in the U.K. I believe that this should be essential reading for anyone aiming to build a diversified, income portfolio for their retirement.

If you would like to know more, click here now to download your copy of this report -- it's free, but availability is strictly limited, so don't delay.