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Tuesday, March 25, 2014 - 13:00

If I Could Have Only One Stock In My Retirement Portfolio, This Would Be It

Tuesday, March 25, 2014 1:00 PM

While at a party several months ago, I was asked: Which stock I would choose for my retirement if I had to pick just one?

Initially, I was taken aback by the question. My immediate answer was to never rely on a single stock for any investment portfolio, let alone for a retirement portfolio. I launched into a spiel about the importance of diversification and balance, and simply how dangerous betting something as critical as your retirement on a single stock choice would be.

The person continued to push me for an answer, so instinctively I blurted out the SPDR S&P 500 Index Fund ETF (NYSE: SPY).

My new friend wasn't satisfied at all with this answer. He continued to prod me for a single company. I finally told him that I did not have an answer to his question offhand but I would do some research. After looking into his question, I determined that a company would have to satisfy the following criteria to be considered for this unique honor.

1. Stability
Safety and security should be the top goal of any retirement portfolio.

The company should operate in a nearly recession-proof business so that it can more easily weather (and perhaps flourish) during the differing economic cycles it will be exposed to over the long term. As proof of its longevity, it should have been active for at least 50 years. (This criterion eliminates virtually all high-tech companies since the industry is still relatively young.)

2. Strong Balance Sheet
The balance sheet -- which shows what the company owes and owns -- is the most important indicator of a company's financial health. Indicators of weakness can include a low current ratio and negative net assets, equity or retained earnings. Indicators of strength include undervalued assets, low long-term debt, and a healthy base of cash and liquid investments. Obviously, this single stock should have an impeccable balance sheet.

3. Dividend Aristocrat
Readers of my colleague Amy Calistri's premium advisory The Daily Paycheck are well aware of the importance of steadily increasing dividends and dividend reinvestment when it comes to building wealth.

Therefore, it is critical that this single stock be a strong dividend payer. In fact, the stock has to be a Dividend Aristocrat -- meaning that it has increased its dividend payout for at least 25 years in a row -- to be considered. This proves stability and management's ability to produce excess cash regardless of the economic conditions.

Applying this screen yields dozens of stocks from the universe of possible names. Filtering further, I searched for stocks that have been in an uptrend for the past several years (the longer the timeframe, the better) without many sharp moves in either direction.

Finally, I asked, "Do I like this company, and do I believe in its long-term viability?" I know this is a subjective and non-scientific measure, but intuition isn't something that should be dismissed when it comes to stock picking.

After I boiled everything down, I finally came up with the stock that I would have in my hypothetical single-stock retirement portfolio: McCormick & Co. (NYSE: MKC).

This company is the leader in one of the world's oldest industries: spices.

This business can be traced back to the Middle Ages when explorers searched the known world for the spice trade. McCormick was launched in 1889 and has since grown organically and by acquisition to be one of the largest companies in its niche.

The company operates in two segments, consumer and industrial. The consumer segment services retail outlets and private label products. While the industrial segment works with food manufacturers and food-service clients. McCormick boasts a market cap of $8.9 billion, trailing 12-month revenue of $4.1 billion, and gross profit of $1.7 billion. It has $75.2 million of total cash and a current ratio of 1.3, as well as over $4 billion in annual sales. Perhaps most importantly, the company increased its dividend this year from $0.34 to $0.37, marking the 28th consecutive annual dividend increase for this Dividend Aristocrat.

Flickr/Takahiro Yamagiwa
McCormick was launched in 1889 and has since grown organically and by acquisition to be one of the largest companies in the world in its niche.

Unfortunately, the company recently hit a bump in the road with its fourth-quarter earnings report. Earnings per share of $1.20 beat estimates by a penny but revenue of $1.17 billion missed the average analyst's estimate of $1.22 billion. This miss launched a downgrade from Deutsche Bank from "buy" to "hold" and sent shares skidding lower by 6% on the day of release.

The most important thing is to know is that the overall earnings report remained solid. Revenue increased 2% year over year, earnings rose 8%, and adjusted operating income increased by 7% -- hardly poor results.

Other key notes about the stock include a slowdown in the restaurant industry, namely weak results from Darden Restaurants (NYSE: DRI), the world's largest full-service restaurant company. Darden owns such popular names as Red Lobster, Olive Garden, Longhorn Steakhouse, and my personal favorite, the Capital Grille.

Although I think Darden will bounce back, it's important to note that even in a worse-case scenario with the entire company going under, other similar chains will rise up to serve consumers. These new customers will need McCormick's products in the same way nearly every restaurant does.

Furthermore, McCormick is well diversified across the food business: 41% of its revenue comes from its Americas consumer segment; 28% from Americas industrial; a combined 21% from its Europe, Middle East and Africa segments; and a combined 10% from its Asia Pacific segments.

McCormick also has an incredibly diversified customer base, so trouble in any one customer will merely be a blip on the company's long-term upward trajectory.

Risks to Consider: There is market risk in any stock investment. Anything can happen in the economy and the potential for a series of black swan events exists. Always diversify and use stop-loss orders when investing.

Action to Take --> As you can see from this long-term chart of McCormick, price has been in a long-term uptrend since 2009. Buying now or waiting for a pullback to enter long positions is a decision best answered by whichever entry method is most comfortable for you. This stock has what it takes to be a long-term core holding in anyone's portfolio.

P.S. If you haven't heard about Amy Calistri's "Dividend Trifecta" strategy... it's working. Right now, an incredible 91% of the picks in her Daily Paycheck advisory are winners. And she's collecting more than $1,400 per month in dividend checks. In short, this is a way for investors to turn just 10 minutes per month into thousands of dollars in extra income. Click here to get the full story.

 

David Goodboy does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.