Is Marks & Spencer the Ultimate Retirement Share?

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LONDON -- The last five years have been tough for those in retirement. Portfolio valuations have been hammered, and annuity rates have plunged. There's no sign things will improve anytime soon, either, as the eurozone and the U.K. economy look set to muddle through at best for some years to come.

A great way to protect yourself from the downturn, however, is to build your retirement fund with shares of large, well-run companies that should grow their earnings steadily over the coming decades. Over time, such investments ought to result in rising dividends and inflation-beating capital growth.

In this series, I'm tracking down the U.K. large caps that have the potential to beat the FTSE 100 (INDEX: ^FTSE) over the long term and support a lower-risk, income-generating retirement fund (you can see the companies I've covered so far on this page).


Today, I'm going to take a look at Marks & Spencer Group (ISE: MKS.L) , the high-street bellwether whose clothing sales are coming under increasing pressure from the likes of Next.

Fashion and food
Marks & Spencer's mixture of food and clothing has served it well over the years, but there's no doubt that it's struggling in the fashion department at the moment. This has been reflected in its financial results over the last few years, as it has failed to outperform the FTSE 100:

 

2007

2008

2009

2010

2011

Trailing 10-Year Average

Marks & Spencer Total Return

(19.1%)

(57.6%)

94.2%

(4.3%)

(11.1%)

3.9%

FTSE 100 Total Return

7.4%

(28.3%)

27.3%

12.6%

(2.2%)

6.8%

Source: Morningstar. Total return includes both changes to the share price and reinvested dividends. These two ingredients combined are what make it possible for equity portfolios to regularly outperform cash and bonds over the long term.

M&S has recently appointed a new style director and replaced the director responsible for the company's clothing ranges. But will it be enough to lift the company's total returns above those of the FTSE 100?

What's the score?
To help me pinpoint suitable investments, I like to score companies on key financial metrics that highlight the characteristics I look for in a retirement share. Let's see how Marks & Spencer shapes up.

The basics

Year Founded

1894

Market Cap

5.7 billion pounds

Net Debt

2.1 billion pounds

Dividend Yield

4.8%

Five-year average financials

Operating Margin

9.7%

Interest Cover

6.8 times

EPS Growth

(1%)

Dividend Growth

4.4%

Dividend Cover

2.1 times

Sources: Morningstar, Digital Look, Marks & Spencer.

Here's how I've scored Marks & Spencer on each of these criteria:

Criteria

Comment

Score (out of 5)

Longevity

Another British name with more than 100 years of trading.

5

Performance vs. FTSE

Neither great nor consistent.

3

Financial Strength

Margins are always under pressure, but interest cover is strong.

3

EPS Growth

Needs to do better -- its products are the problem.

2

Dividend Growth

A decent yield means that matching inflation is acceptable.

4

 

 

Total: 17/25

Marks & Spencer has some serious work ahead of it to regain the edge in the high-street fashion stakes. Its score of 17 out of 25 highlights the potential of this stock, but it hasn't delivered properly for some years, and clothing sales were down more than 5% in the first quarter of the current financial year.

Expert selections
Marks & Spencer won't be on my retirement portfolio shopping list, but I do already own some of the great dividend-paying shares picked by City fund manager Neil Woodford, who manages 20 billion pounds of private investors' money in his funds. Neil Woodford's dividend stock picks have outperformed the wider index by a staggering 305% over the last 15 years, and you can learn about his top holdings in this free Motley Fool report. I strongly recommend you download "8 Shares Held By Britain's Super Investor" today, as it is available for a limited time only.

Warren Buffett buys British! The legendary investor has recently topped up on his favorite U.K. blue chip. Discover what he bought -- and the price he paid -- within our latest free report!

Further investment opportunities:

The article Is Marks & Spencer the Ultimate Retirement Share? originally appeared on Fool.com.

Roland does not own shares in Marks & Spencer or Next. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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