Which of these five shares would be best for a FTSE-beating retirement fund?
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 of things improving anytime soon, either, as the eurozone and the UK economy look set to muddle through at best for some years to come.
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.
In this series, I'm tracking down the UK large-caps that have the potential to beat the FTSE 100 (UKX) over the long term and support a lower-risk income-generating retirement fund (you can see all of the companies I've covered so far on this page).
Over the last week or so, I've looked at Standard Chartered (LSE: STAN), Legal & General Group (LSE: LGEN), Rio Tinto (LSE: RIO) (NYSE: RIO.US), GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) and SABMiller (LSE: SAB). Let's take a look at how each of them scored against my five key retirement share criteria:
| Criteria | Legal & General | Rio Tinto | GlaxoSmithKline | Standard Chartered | SABMiller |
|---|
| Longevity | 5/5 | 5/5 | 4/5 | 5/5 | 5/5 |
| Performance vs. FTSE | 3/5 | 3/5 | 4/5 | 4/5 | 4/5 |
| Financial strength | 4/5 | 4/5 | 4/5 | 4/5 | 4/5 |
| EPS growth | 2/5 | 3/5 | 3/5 | 4/5 | 4/5 |
| Dividend growth | 3/5 | 3/5 | 4/5 | 3/5 | 4/5 |
| Total | 17/25 | 18/25 | 19/25 | 20/25 | 21/25 |
Brewing a profit
Top scorer of this quintet with 21/25 was South African brewer SABMiller, which has a rapidly growing global portfolio of lager and soft drink brands. SAB's sales growth is especially strong in emerging markets, which has enabled it to generate impressive growth for a number of years; this share's main downside is that it is now quite pricey, leaving its yield relatively low. However, its long-term earning power and strong record of dividend growth mean it could still make a good retirement share.
A few days after I wrote the Standard Chartered article, it become the latest British bank to get involved in a regulatory scandal, when US regulators accused it of being breaking US sanctions on money transfers with Iran. Despite this blemish on its formerly clean reputation, and the possibility of further fines, I don't think that this scandal will have any significant effect on the bank's long-term prospects. I still have a high opinion of Standard Chartered as a retirement share, thanks to its strength in key emerging markets.
Global miner Rio Tinto scored 18/25 and offers an attractive level of diversification in terms of the locations in which it operates and the commodities it produces. I believe that Rio should prove to be a good cash cow for a retirement portfolio, generating strong earnings consistently over a long period. Although it's quite a cyclical share, Rio's current low P/E valuation is attractive and it could be a good time to buy -- it's on my shopping list at the moment.
Life insurer Legal & General has one of the longest histories in the FTSE 100, with nearly 200 years of continuous trading. Despite achieving the lowest score in this review, I believe it is a safe bet for a retirement share and will generate a reliable income. Legal & General weathered the storm of the financial crisis relatively well, and although it is unlikely to deliver spectacular growth, it is unlikely to go bust, either.
An expert tip
Finally, it is worth noting that pharmaceutical giant GlaxoSmithKline, which scored 19/25, is the only one of these five shares to be included in the eight biggest holdings of city legend Neil Woodford, who manages more than £20bn of private investors' funds. I own GSK shares myself and agree with Mr Woodford's reasons for holding the share, which are explained in this special free report from the Motley Fool.
Neil Woodford is one of the most successful income investors currently working in the City and his dividend stock picks have outperformed the wider index by a staggering 305% over the last 15 years -- a record few investors can even dream of.
You can learn about all eight of Neil Woodford's top holdings and see how he generates such fantastic profits in this free Motley Fool report. Many of Mr Woodford's choices look like excellent retirement shares to me and the report explains how he chose some of his biggest holdings.
This report is completely free and 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 favourite UK blue chip. Discover what he bought -- and the price he paid -- within our latest free report!
Further investment opportunities:
> Roland owns shares in GlaxoSmithKline but does not own any of the other shares mentioned in this article.
