Is Boeing 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 Boeing (NYS: BA) 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 Boeing.

Factor

What We Want to See

Actual

Pass or Fail?

SizeMarket cap > $10 billion$47.1 billionPass
ConsistencyRevenue growth > 0% in at least four of five past years3 yearsFail
 Free cash flow growth > 0% in at least four of past five years1 yearFail
Stock stabilityBeta < 0.91.28Fail
 Worst loss in past five years no greater than 20%(50.1%)Fail
ValuationNormalized P/E < 1816.16Pass
DividendsCurrent yield > 2%2.8%Pass
 5-year dividend growth > 10%7.9%Fail
 Streak of dividend increases >= 10 years0 yearsFail
 Payout ratio < 75%35%Pass
    
 Total score 4 out of 10

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

With only four points, Boeing isn't flying high in giving conservative investors what they prefer from their favorite stocks. The aerospace giant is having some good fortune in the commercial space, but government budget woes threaten its defense business.

You'd think that a combination of high fuel costs and a weak economy would be pushing airlines toward cutting back, potentially devastating Boeing's commercial airliner business. But instead, many airlines are doing exactly the opposite, making grand fleet expansions. AMR (NYS: AMR) made a mammoth order of 460 planes, and although rival Airbus got the majority of the order, Boeing will still produce 200 737s in the deal. Delta Air Lines (NYS: DAL) also made a big order, and at least so far, worries that Southwest Airlines (NYS: LUV) would jump ship and drop its Boeing exclusivity to order Airbus planes haven't panned out.

But Boeing is also a major defense contractor, and on that side of the business, government penny-pinching is hurting. Just as Lockheed Martin (NYS: LMT) has seen with its F-35, rumored cost overruns on Boeing's KC-46 tanker aircraft could result in lower profits for the company. The answer may be to get more revenue from overseas, but in the meantime, competition with fellow defense giants like Lockheed, Raytheon (NYS: RTN) , and Northrop Grumman (NYS: NOC) will be fierce.

For retirees and other conservative investors, Boeing is a well-known name with a good track record of providing decent dividend income. But the stock has faced turbulence from economic and government-spending uncertainty, and that doesn't look likely to end anytime soon. For conservative investors, Boeing may be too risky to include in their retirement portfolios.

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 Boeing 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 Lockheed Martin, Raytheon, and Northrop Grumman. Motley Fool newsletter services have recommended buying shares of Southwest Airlines. 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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