John Wood Group PLC (WG): Is It the Ultimate Retirement Share?

Wood Group has grown strongly over the last five years and shareholder returns were boosted in 2011 by a £1.1 billion return of cash, following the sale of the company’s Well Support division to GE. The scheme was executed through a tender offer, rather than a special dividend, but shareholders participating in the scheme will have seen a substantial cash return in addition to their regular dividend payments.

However, despite a 5-year average dividend growth rate of 13.6%, John Wood Group PLC (LON:WG)’s forecast dividend yield of 1.7% is far lower than that of its sector peers Amec, which offers a prospective yield of 4.1%, and Petrofac, which offers a potential 3.6% yield. All three companies trade on similar forward price to earnings (P/E) ratios and are of a similar size, making Wood Group less attractive as a potential retirement share, despite its strong performance history.

My verdict
Wood Group is a high quality company with a strong track record of profitable growth. However, as a retirement share, it would provide a dividend income substantially below its sector average, making it look relatively expensive compared to Amec and Petrofac, its two main U.K.-listed peers. Both of these companies also have net cash positions, which compare favourably to John Wood Group PLC (LON:WG)’s $154 million net debt.

Finally, if you’re interested in investing in an oil services company as part of a diversified retirement portfolio, you should remember that these companies would be vulnerable to a sustained drop in oil prices, so their performance is likely to be correlated with that of oil supermajors such as Royal Dutch Shell and BP.

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The article Is John Wood Group the Ultimate Retirement Share? originally appeared on Fool.com and is written by Roland Head.

Roland Head owns shares in Royal Dutch Shell and BP, but does not own shares in any of the other companies mentioned in this article. The Motley Fool has no position in any of the stocks mentioned.

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