Is H.J. Heinz 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 H.J. Heinz (NYS: HNZ) 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:

  • 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 Heinz.

Factor

What We Want to See

Actual

Pass or Fail?

SizeMarket cap > $10 billion$16.6 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 years3 yearsFail
Stock stabilityBeta < 0.90.57Pass
 Worst loss in past five years no greater than 20%(16.5%)Pass
ValuationNormalized P/E < 1819.36Fail
DividendsCurrent yield > 2%3.7%Pass
 5-year dividend growth > 10%7.9%Fail
 Streak of dividend increases >= 10 years8 yearsFail
 Payout ratio < 75%58.6%Pass
    
 Total score 6 out of 10

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

With six points, Heinz could add some spice even for conservative investors looking for a good stock for their retirement portfolios. As the economic recovery starts to slow down, defensive stocks like Heinz have already gained in popularity.

Many investors see Heinz as an American icon in the food industry. But just as Yum! Brands (NYS: YUM) and McDonald's (NYS: MCD) have pinned their growth hopes on international markets, so, too, has Heinz seen big strength in China, India, and Indonesia.

But rising food prices have forced Heinz to pass on costs to consumers. Just as Procter & Gamble (NYS: PG) and PepsiCo (NYS: PEP) reduced the size of some of their products recently, Heinz also cut back on its Heinz 57 sauce bottles by 11%, helping to offset the tripling in tomato prices since last year.

The commitment to trying to preserve margins is good for shareholders, though. Heinz again boosted its dividend by 7% earlier this year, but still has plenty of room for future increases.

As retirees and other conservative investors look for shelter from the recent market storm, Heinz may provide exactly the protection you want. Don't expect huge growth from the company, but as a solid part of your portfolio, Heinz could well be the right stock to retire with for you.

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 H.J. Heinz 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. The Motley Fool owns shares of Yum! Brands and PepsiCo.Motley Fool newsletter serviceshave recommended buying shares of H.J. Heinz, Yum! Brands, Procter & Gamble, McDonald's, and PepsiCo, as well as creating a diagonal call position on PepsiCo. 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.

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