Is BP the ultimate retirement share?
A great way of protecting yourself from the downturn, however, is by building 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.
Today, I'm going to take a look at BP , a company that used to be bigger than Royal Dutch Shell but which is still recovering from its Gulf of Mexico disaster in 2010 and is in the throes of negotiating an exit from its profitable but troubled Russian joint venture, TNK-BP.
Total Return 2007 2008 2009 2010 2011 Trailing 10 yr avg.
(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.)
BP's disastrous 2010 lets down its overall returns, but it's easy to see that if the Gulf of Mexico hadn't happened, BP's performance would be well ahead of the FTSE 100 on a 10-year trailing average basis.
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 BP shapes up:
Item Value 5 year average financials
Here's how I've scored BP on each of these criteria:Criteria Comment Score
|Longevity||One of the original pioneers of oil exploration in the Middle East.||5/5|
|Performance vs. FTSE||Has the potential but hasn't delivered in recent years.||3/5|
|Financial strength||Remains strong financially despite its problems.||3/5|
|EPS growth||BP is still in transition and isn't delivering consistent growth.||2/5|
|Dividend growth||Erratic growth but a solid yield and appropriate level of cover.||3/5|
A score of 16/25 reflects the fact that BP is going through a transition. Costs are still ongoing from the Gulf of Mexico and although it wants to sell its stake in TNK-BP, I'm not sure it has a clear plan to replace this income. Despite this, in the long term I believe it will recover and could be a good candidate for a retirement fund portfolio.