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. In this series, I look at 10 measures to show what makes a great retirement-oriented stock.
Thanks to technological innovation, huge amounts of information are available to investors that didn't even exist before. The challenge, though, is trying to find it from various locations scattered across the Internet and other public sources. Dun & Bradstreet (NYS: DNB) seeks to make search for business information much easier, gathering and disseminating data to its clients. But is the company's moat slowly eroding? Below, we'll revisit how Dun & Bradstreet does on our 10-point scale.
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 Dun & Bradstreet.
What We Want to See
Pass or Fail?
Market cap > $10 billion
Revenue growth > 0% in at least four of five past years
Free cash flow growth > 0% in at least four of past five years
Beta < 0.9
Worst loss in past five years no greater than 20%
Normalized P/E < 18
Current yield > 2%
5-year dividend growth > 10%
Streak of dividend increases >= 10 years
Payout ratio < 75%
6 out of 10
Source: S&P Capital IQ. Total score = number of passes.
Since we looked at Dun & Bradstreet last year, the company has kept its six-point score. The stock has done even better, rising 20% over the past year.
Dun & Bradstreet has a long history of providing business information to clients. Along with competitorsMcGraw-Hill (NYS: MHP) and Thomson Reuters (NYS: TRI) in the general information space, as well as specialty data provider comScore (NAS: SCOR) and other niche players, Dun & Bradstreet puts enough work into its efforts to charge premium subscription prices.
But Dun & Bradstreet faces some new competition from business social media giantLinkedIn (NYS: LNKD) , which is taking user-provided information and repackaging it into lucrative offerings that it can use to entice premium subscribers. If LinkedIn's information proves to be valuable enough to drive subscriber retention and earn recurring revenue, then D&B could be forced to re-examine its own business model.
Earlier this year, reports emerged that D&B planned to put itself up for sale. Since that initial pop, the story hasn't gotten much traction, raising concerns that the business may not be attractive enough to entice a bidder.
For retirees and other conservative investors, a dividend yield below 2% is far from ideal for a company that should enjoy strong cash flow when its subscriber base is healthy. A lower valuation makes the stock more attractive, but retirement investors may prefer to wait until the company comes up with a viable plan to bolster faster growth.
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.
Traditional information providers like Dun & Bradstreet are struggling to adapt to a new world where companies gather extensive datasets on their own. Facebook is the best example, but there is a lot more to this company than meets the eye. Read up on whether there is anything to "like" about the social media giant today in our premium report, where we reveal whether Facebook is a buy. But don't wait -- access your report by clicking here.
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The article Will Dun & Bradstreet Help You Retire Rich? originally appeared on Fool.com.
Fool contributor Dan Caplinger has no positions in the stocks mentioned above. The Motley Fool owns shares of LinkedIn and McGraw-Hill. Motley Fool newsletter services recommend LinkedIn. Try any of our Foolish newsletter services free for 30 days. 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 Motley Fool has a disclosure policy.
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