Is Anheuser-Busch InBev 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 Anheuser-Busch InBev (NYS: BUD) 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 Anheuser-Busch InBev.

Factor

What We Want to See

Actual

Pass or Fail?

SizeMarket cap > $10 billion$83.4 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 < 0.90.70Pass
 Worst loss in past five years no greater than 20%(53.9%)Fail
ValuationNormalized P/E < 1815.17Pass
DividendsCurrent yield > 2%2.1%Pass
 5-year dividend growth > 10%9%Fail
 Streak of dividend increases >= 10 years1 yearFail
 Payout ratio < 75%65%Pass
    
 Total score 6 out of 10

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

Even though it only scores six points, Anheuser-Busch InBev offers conservative investors some strong characteristics. With the beer maker paying a reasonable dividend at an attractive valuation and providing strong revenue and free cash flow growth in recent years, the biggest uncertainty is whether the merger of Anheuser-Busch and InBev will prove fruitful in the years to come.

Before its merger, Anheuser-Busch was a well-regarded stock. It had raised dividends 31 years in a row and stood atop a U.S. market where Molson Coors (NYS: TAP) and SABMiller have competed with mixed success. But after the merger, debt concerns have forced the company to keep a tighter rein on cash flowing out to shareholders.

Meanwhile, the company is facing strong competition from craft-brew giantBoston Beer (NYS: SAM) and some smaller players in the industry. Some criticize its recent decision to spend time redesigning its packaging rather than trying to produce a better beer.

For retirees and conservative investors looking for defensive plays, Anheuser-Busch InBev is a smart way to invest for a possible double-dip recession. Even more so than hard-liquor stocks Diageo (NYS: DEO) , Brown-Forman (NYS: BF.B) , and Fortune Brands (NYS: FO) , beer has a reputation for never going out of style even in tough times. That may not have stopped alcohol-related stocks from plunging in the 2008-2009 bear market, but with its longer-term dividend history behind it, Anheuser-Busch should keep on generating ever-greater income streams for its shareholders.

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 Anheuser-Busch InBev 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 the "13 Steps to Investing Foolishly."

At the time this article was published Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Molson Coors, Boston Beer, Diageo, and Fortune Brands. Motley Fool newsletter services have recommended buying shares of Boston Beer, Diageo, Fortune Brands, and Molson Coors. 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 a disclosure policy.

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

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