The past five years, it was hard for those who have retired. Portfolio assessment was clogged and annuity rates have fallen. There’s no sign of things improving in the near future, or, as in the euro area and the UK economy looks set to muddle through at best for years to come.
A great way to protect yourself from the crisis, but by creating your retirement fund with shares of large, well-run companies that need to grow their revenues steadily over the next decades. Over time, this investment will lead to an increase in dividends and inflation beating capital growth.
In this series, I keep track of the UK large companies that have the potential to defeat the FTSE 100 over the long term and support to low-risk generating retirement fund.
Today, I’m going to look at the Imperial Tobacco Group (LSE: IMT.L), the second-largest tobacco company in the UK.
Does Imperial beat the index?
To start, let’s see how Imperial Tobacco opposed FTSE 100 over the last 10 years, based on the total return:
Source: Morningstar. (Total return includes both the change in share price and reinvestment of dividends. These two ingredients together, making it possible equity portfolios regularly outperforms cash and bonds in the long term).
Imperial Tobacco outperformed the FTSE 100 over the past 10 years, providing an average of 3%, the total additional revenue each year. However, most of the Imperial British peer, British American Tobacco, has put a lot more returns, highlighting the advantages of its greater emphasis on emerging markets.
What’s the score?
To help me determine the appropriate investments, I would like to score companies on key financial indicators highlight the characteristics I look for in a pension share. Let’s see how Imperial Tobacco shapes up:
Source: Morningstar, Digital Look, Imperial Tobacco.
Here’s how I scored Imperial Tobacco for each of these criteria:
Imperial Tobacco score of 20 out of 25 suggests that this may be a strong candidate for the portfolio of the pension fund. However, Imperial playing catch-up with British American Tobacco in emerging markets and is struggling to maintain their margins in mature and more highly regulated western markets.
My choice would be the share of tobacco BAT, which I feel offers the best prospects for growth and a more reliable income than Imperial. On the other hand, Imperial is currently trading at a fairly attractive P / E ratio is 12.2, which makes it much cheaper than the Bat P / E, of 16.4.
Both stocks are attractive investments, and you may be interested to know that both Imperial and BAT accounts for most of the city legend Neil Wood Ford – the man many see as the answer to the UK’s on Warren Buffett.
Woodford in other shares
Dividend stock picks Neil Woodford plays in the broader index by a staggering 305% in the 15 years up to 31 December 2011, and he now manages more money to private investors than any other city manager.
Imperial Tobacco and BAT are two of Neil Woodford’s top eight holdings- and if you would like to learn about other actions he chose and how he creates such a fantastic profit, then I would strongly recommend this free Motley Fool report.
In the report, we explain how he chose some of its largest holdings, many of which are excellent stocks to retire, in my opinion.
This report is completely free, and I highly recommend you download “8 shares held by an investor Great Britain” today, as it is available for a limited time only.