One of the things that many investors look for when investing in a company that forms part of their pension portfolio is longevity.
Indeed, there is little point in investing in a company that is unlikely to still be in existence by the time you retire. Furthermore, in order for you to retire early, the company must get the basics right and ensure it has the sound financial foundations in place to deliver growth over the medium to long term.
In other words, it needs to have kept its financial house in order before it can expect to produce above-average returns.
In terms of longevity, Vodafone (LSE: VOD) (NASDAQ: VOD.US) seems to score well. For instance, its interest coverage ratio is a healthy 4x, meaning its operating profit could have paid the interest charges on its debt four times at the most recent set of interim results.
However, operating profit included losses from discontinued operations and joint ventures. Excluding such losses means that Vodafone’s interest coverage ratio is a much more impressive 10x, which shows that the company is very capable of servicing its debt. This provides evidence that the company is on a relatively firm financial footing and, as such, has a better chance of being around in the long run.
In addition, Vodafone seems to have scope to pay out a greater proportion of earnings as a dividend. For instance, it is expected to pay out around two-thirds of earnings per share (EPS) as a dividend this year and, given that Vodafone is a mature company operating in what is fast-becoming a mature industry, this seems rather mean.
Furthermore, an increase in the payout ratio could have a significantly positive impact on long term returns and, importantly, on potential retirement dates.
Research has shown that a large part of total return in the long run is delivered by dividends rather than capital gains. With Vodafone currently yielding 4.6% and having the potential to pay out a larger proportion of earnings as a dividend, it could prove to be a stock that brings forward your retirement date somewhat.
In addition, its firm financial footing should mean that it is still around to provide you with an income whenever you do decide to kick back by the pool (or whatever else you plan on doing upon retirement).
