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.
Wynn Resorts (WYNN +1.25%) has been among the top players in the casino gaming industry for years, thanks to its global reach, with a big presence both in Las Vegas and the Asian gaming capital of Macau. With Vegas apparently coming back, can Wynn handle a potential slowdown in the once red-hot Chinese market? Below, we'll revisit how Wynn Resorts 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 Wynn Resorts.
|
Factor |
What We Want to See |
Actual |
Pass or Fail? |
|---|---|---|---|
|
Size |
Market cap > $10 billion |
$15 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 |
3 years |
Fail | |
|
Stock stability |
Beta < 0.9 |
2.38 |
Fail |
|
Worst loss in past five years no greater than 20% |
(62.3%) |
Fail | |
|
Valuation |
Normalized P/E < 18 |
48.59 |
Fail |
|
Dividends |
Current yield > 2% |
3.3%* |
Pass |
|
5-year dividend growth > 10% |
NM |
NM | |
|
Streak of dividend increases >= 10 years |
2 years |
Fail | |
|
Payout ratio < 75% |
76%* |
Fail | |
|
Total score |
3 out of 9 |
Source: S&P Capital IQ. NM = not meaningful; Wynn Resorts started paying a regular dividend in May 2010. Total score = number of passes. *Based on recent dividend increase to take effect next year; excludes special dividends.
Since we looked at Wynn Resorts last year, the company has dropped a point, with falling free cash flow contributing to the score loss. The stock has also struggled just to tread water over the past year as concerns about Asia's growth weigh on the gaming company's Macau operations.
Many people think of Las Vegas as the center of the action in the gaming industry, but casino companies understand that the real action lately has been in Asia. For years, Las Vegas Sands (LVS +1.84%), MGM Resorts (MGM +0.79%), and Melco Crown (MPEL +1.68%) have battled with Wynn in Macau, which has arguably become the gaming capital of the world.
But even though Wynn has performed strongly in Macau, it hasn't quite kept up with changing trends there. Lately, the Cotai Strip area has gained in prominence, with newer casinos from Sands and Melco Crown getting a lot of attention. Wynn has plans for a new casino there, but it'll take time for the company to get the full benefit of its Cotai presence. Meanwhile, Sands is also expanding in Singapore, suggesting that Wynn will have to develop in new areas to keep its position among top Asian players.
In its most recent quarter, Wynn surprised everyone with extraordinarily positive results. Even as operating income from Macau has shown initial signs of weakening as the action moves to Cotai, Wynn saw a big boost in revenue and profits from Vegas for the first time in a long while. It also announced a $7.50-per-share dividend and a doubling of its regular dividend, signaling a greater emphasis on rewarding shareholders and putting debt-laden competitors MGM and Caesars Entertainment (CZR +0.00%) to shame.
For retirees and other conservative shareholders, higher dividends make Wynn more attractive. But with its sky-high valuations, many may prefer to wait for a pullback before committing to the high-stakes play that Wynn represents right now.
Keep searching
Finding exactly the right stock to retire with is a tough task, but it's not impossible. Searching for the best candidates will help improve your investing skills, and teach you how to separate the right stocks from the risky ones.
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