Is Cablevision Systems 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 Cablevision Systems (NYS: CVC) 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 Cablevision Systems.

Factor

What We Want to See

Actual

Pass or Fail?

SizeMarket cap > $10 billion$4.8 billionFail
ConsistencyRevenue growth > 0% in at least four of five past years4 yearsPass
 Free cash flow growth > 0% in at least four of past five years5 yearsPass
Stock stabilityBeta < 0.91.54Fail
 Worst loss in past five years no greater than 20%(30.5%)Fail
ValuationNormalized P/E < 1812.93Pass
DividendsCurrent yield > 2%3.5%Pass
 5-year dividend growth > 10%14.5%*Pass
 Streak of dividend increases >= 10 years2 yearsFail
 Payout ratio < 75%36.6%Pass
    
 Total score 6 out of 10

Source: Capital IQ, a division of Standard & Poor's.
*Three-year dividend growth rate since Cablevision started paying a dividend in August 2008.
Total score = number of passes.

With six points, Cablevision Systems broadcasts some good results for conservative investors looking to bolster their retirement portfolios. But the company has seen its business split in two, with disturbing losses in video customer counts only partially offset by increasing demand for high-speed broadband Internet service.

Cable companies have had a hard time keeping customers for their traditional video business. Both Cablevision and Comcast (NAS: CMCSA) saw dips in customer counts last year, and that trend has continued this year, with Cablevision and DISH Network (NAS: DISH) seeing substantial drops in the second quarter.

But the same trends that are causing regular cable customers to bolt are also supporting Cablevision's broadband business. With Google (NAS: GOOG) and Verizon (NYS: VZ) reportedly having plans to build "superfast" network connections, broadband providers like Time Warner Cable (NYS: TWC) and Cablevision will likely follow Comcast's lead in experimenting with ways to provide higher-speed service.

Cablevision isn't exactly the type of calm stock that retirees and other conservative investors prefer to own. In an ever-changing business, the stock will inevitably rise and fall sharply. But if Cablevision can stay ahead of the curve, it could be a reasonable addition for risk-tolerant investors.

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 Cablevision Systems 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 Google.Motley Fool newsletter serviceshave recommended buying shares of Google. 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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