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 Statoil ASA(ADR) (NYSE:STO).
| Factor | What We Want to See | Actual | Pass or Fail? |
|---|---|---|---|
| Size | Market cap > $10 billion | $77.4 billion | Pass |
| Consistency | Revenue growth > 0% in at least four of five past years | 4 years | Pass |
| Free cash flow growth > 0% in at least four of past five years | 3 years | Fail | |
| Stock stability | Beta < 0.9 | 0.53 | Pass |
| Worst loss in past five years no greater than 20% | (45.1%) | Fail | |
| Valuation | Normalized P/E < 18 | 3.97 | Pass |
| Dividends | Current yield > 2% | 4.9% | Pass |
| 5-year dividend growth > 10% | 10% | Pass | |
| Streak of dividend increases >= 10 years | 2 years | Fail | |
| Payout ratio < 75% | 30% | Pass | |
| Total score | 7 out of 10 |
Source: S&P Capital IQ. Total score = number of passes.
Since we looked at Statoil last year, the company has stuck with its seven-point score for the third year in a row. The stock, however, has sputtered, losing about 5% of its value over the past year.
Much of the reason for Statoil’s weakness over the past year comes from a simple fact of geography. Investors have been extremely nervous about instability in the eurozone, and even though oil giants including France’s Total S.A. (ADR) , Italy’s Eni SpA (ADR) (NYSE:E) , and Norway’s Statoil ASA(ADR) (NYSE:STO) all own energy properties located around the world, their shares have nevertheless traded as though they were overly exposed to their home markets. Moreover, Norway is among the most stable of Europe’s national economies, making the cheap valuations even more ridiculous.
To prove its value to investors, Statoil has been pushing hard to obtain new properties with high production potential. Last month, the company won 15 exploration leases in the Gulf of Mexico, with one bid for nearly $82 million on a single high-profile block, and brought its total exposure in the gulf to 340 leases. Off the coast of Tanzania, meanwhile, Statoil and partner Exxon Mobil Corporation (NYSE:XOM) discovered natural gas in a block with estimates of between 15 trillion and 17 trillion cubic feet.
Statoil also hasn’t been afraid to get help with its own lucrative prospects close to home. The company has gotten ConocoPhillips (NYSE:COP) to commit to a $4 billion investment plan focused on the Greater Ekofisk Area, in a joint venture with Statoil and Total. As long as high Brent oil prices persist, the better margins available from Norwegian crude will give Statoil a chance to form similarly lucrative partnerships with other industry players.
For retirees and other conservative investors, a 5% dividend yield with fairly consistent growth at an extremely attractive valuation is hard to pass up. Given the combination of investor aversion to energy stocks and to companies in Europe, Statoil arguably trades at a double discount that makes it a smart pick-up at current levels.
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The article Will Statoil Help You Retire Rich? originally appeared on Fool.com.
Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Statoil and Total.
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