Is Newmont Mining the Right Stock to Retire With?

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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. Let's figure out what makes a great retirement-oriented stock, then examine whether Newmont Mining (NYS: NEM) has what we're looking for.

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:

With those factors in mind, let's take a closer look at Newmont Mining.

Factor

What We Want to See

Actual

Pass or Fail?

SizeMarket cap > $10 billion$28.2 billionPass
ConsistencyRevenue growth > 0% in at least four of five past years4 yearsPass
 Free cash flow growth > 0% in at least four of past five years2 yearsFail
Stock stabilityBeta < 0.90.35Pass
 Worst loss in past five years no greater than 20%(15.8%)Pass
ValuationNormalized P/E < 1811.26Pass
DividendsCurrent yield > 2%2.1%Pass
 5-year dividend growth > 10%10.2%Pass
 Streak of dividend increases >= 10 years2 yearsFail
 Payout ratio < 75%14.3%Pass
    
 Total score 8 out of 10

Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.

With eight points, Newmont Mining gives conservative investors almost everything they'd like to see in a stock. The booming price of gold has helped the company deliver dividend growth and insulate their portfolios from the volatility that most stocks have seen in the past several years.

For many retirees, the idea of investing in precious metals has no more appeal than taking your life savings down to the track. Most up-and-coming miners, including Rubicon Minerals (ASE: RBY) and Brigus Gold (NYS: BRD) pay no dividend at all, while even cash cow Silver Wheaton (NYS: SLW) only recently started paying a token $0.03 quarterly dividend that amounts to a yield of 0.3%. But recently, major producers such as Newmont and Yamana Gold (NYS: AUY) have boosted dividend yields massively to attract income-hungry shareholders.

Newmont's dividend strategy makes inherent sense. Earlier this year, the company said it would tie its dividend to the price of gold, boosting it by $0.05 per quarter for every $100 per ounce that gold prices rose, and similarly cutting it if gold falls. That leaves income investors without the certainty they'd like from their payouts, but it does align the dividend with the company's primary product to a much greater degree than you see at competitor Barrick Gold (NYS: ABX) and AngloGold Ashanti (NYS: AU) .

Of course, the company's prospects are only as strong as that of the metals it mines. Many fear that gold's rally may be overextended, but others point to problematic government policies as continuing reason to expect further gains for the yellow metal.

Gold stocks can indeed be volatile, and so retirees and other conservative investors may not want to put a huge amount of their money into them. But having some exposure isn't a terrible idea, and Newmont is a good way to get that exposure.

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.

Add Newmont Mining to My Watchlist, which will aggregate our Foolish analysis on it and all your other stocks.

If you want to retire rich, you need to be confident that you've got the basics of your investment strategy down pat. See if you're on track by following the13 Steps to Investing Foolishly.

At the time this article was published Fool contributorDan Caplingerdoesn't own shares of the companies mentioned in this article. You can follow him on Twitterhere. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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