Is The Weir Group PLC (WEIR) the Ultimate Retirement Share?

As a result of its strong earnings growth, Weir’s share price remains on a moderate price to earnings ratio (P/E) of 15.7, just below the FTSE 100 average of 16.7. This highlights the biggest weakness of this share, which is that it doesn’t provide very much income. Although Weir has increased its dividend every year since at least 1993, its rapid growth and falling payout ratio has meant that its dividend yield has failed to grow, and is currently a below-average 1.6%. For me, this is simply too low for a retirement share, given that the FTSE 100 average yield is around 3.2%, which can be safely and cheaply accessed through an index tracker fund.

My verdict
Weir Group’s score of 21/25 reflects its quality as a company, and it has performed very well during a boom period for its main customers. Weir also has an enviable record of dividend growth, and announced a double-digit dividend increase for the eighth consecutive year in 2012.

Despite this, at its current share price, Weir’s low yield rules it out for me as a retirement share, because the dividend payout would have to double before its yield rose to match the FTSE 100 average of 3.2%. However, if Weir’s share price were to fall substantially, it could become a very attractive buy.

The article Is Weir Group the Ultimate Retirement Share? originally appeared on Fool.com.

Roland Head has no position in any stocks mentioned. The Motley Fool recommends Weir Group.

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