Is Travis Perkins Plc The Ultimate Retirement Share?

Will shares in Travis Perkins plc (LON:TPK) help you build a FTSE-beating retirement fund?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The last five years have been tough for those in retirement. Portfolio valuations have been hammered and annuity rates have plunged.

A great way of protecting yourself from the downturn, however, is by building your retirement fund with shares of large, well-run companies that have the potential to beat the FTSE 100 over the long term, and should support a lower-risk income-generating retirement fund (you can see the companies I’ve covered so far on this page).

Today, I’m going to take a look at building materials and supplies firm Travis Perkins (LSE: TPK), which was promoted into the FTSE 100 in the index’s most recent reshuffle.

Should you invest £1,000 in Travis Perkins Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Travis Perkins Plc made the list?

See the 6 stocks

Travis Perkins vs FTSE 100

Let’s start with a look at how Travis Perkins has performed against the FTSE 100 over the last 10 years:

Total Returns 2008 2009 2010 2011 2012 2013 YTD 10 yr trailing avg
Travis Perkins -67.0% 150.6% 24.8% -23.3% 39.5% 49.6% 4.6%
FTSE 100 -28.3% 27.3% 12.6% -2.2% 10.0% 13.6% 8.6%

Source: Morningstar

(Total return includes both changes to the share price and reinvested dividends.)

Travis Perkins’ has underperformed the FTSE 100 over the last ten years, but has delivered an average annual total return of 26.4% over the last five years. This eclipses the 6.8% annual total return provided by the FTSE over the same period, and highlights the importance of buying good firms at low valuations.

What’s the score?

To help me pinpoint suitable investments, I like to score companies on key financial metrics that highlight the characteristics I look for in a retirement share. Let’s see how Travis Perkins shapes up:

Item Value
Year founded 1988*
Market cap £3.74bn
Net debt £452m
Dividend Yield 1.7%
5 year average financials
Operating margin 6.7%
Interest cover 8.1x
EPS growth 2.4%
Dividend growth -6.7%
Dividend cover 5.3x

*Travis Perkins was formed when Travis & Arnold merged with Sandell Perkins in 1988, but Travis & Arnold had been in business since 1899.

Here’s how I’ve scored Travis Perkins on each of these criteria:

Criteria Comment Score
Longevity The firm’s roots go back more than a century. 4/5
Performance vs. FTSE Strong but cyclical performance. 4/5
Financial strength Modest gearing and strong cash flow. 4/5
EPS growth Earnings are close to pre-recession levels. 4/5
Dividend growth The dividend was suspended in 2009 and the yield is below average. 3/5
Total: 19/25

Travis Perkins’ score of 19/25 highlights the long-term durability of this business, which should continue to prosper through economic cycles and housing downturns.

The cyclical nature of the Travis Perkins’ business means that its share price is closely linked to the health of the construction industry, but Travis’ broad group of brands — it owns Wickes, Keyline and a number of tool, plumbing, heating and kitchen supply businesses — means that it should be able to weather most economic storms.

My verdict

Travis Perkins is a good company that could make an attractive retirement share. However, the firm’s shares currently trade on around 15 times 2012 earnings, which looks fully valued to me, and its 2.0% prospective yield isn’t that tempting.

Overall, I think Travis Perkins is a hold at its current price, but may be worth another look if the market dips later this year.

2013’s top income stock?

The utility sector is known for its reliable, above-average dividends, but the Motley Fool’s team of analysts has identified one FTSE 100 utility that they believe offers a particularly high-quality income opportunity.

The company in question offers a 5.7% prospective yield, and the Fool’s analysts believe that it could be worth up to 850p per share — a potential 15% gain on the current share price of around 740p.

If you’d like to know more, click here to download your free copy of the team’s exclusive report, while it’s still available.

> Roland does not own shares in Travis Perkins.

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Investing Articles

Up 20% in a month, should investors consider buying Marks & Spencer shares?

Shares in retailer Marks and Spencer have surged ahead over the last month, despite a cyberattack. Roland Head takes a…

Read more »

Charticle

Here are the latest growth and share price targets for Nvidia stock

Ben McPoland checks out the latest forecasts for Nvidia stock to assess whether it might be worth considering for a…

Read more »

Growth Shares

Yikes! This could be the most undervalued growth stock in the FTSE 100

Jon Smith flags up a growth stock with a low price-to-earnings ratio and a share price back at 2020 levels…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

3 beaten-down FTSE 250 shares to consider buying before the next bull market

Paul Summers thinks brave investors should ponder buying some of the FTSE 250s poor performers before they recover strongly.

Read more »

Investing Articles

Gold prices soar while the Fresnillo share price slumps. What gives?

With a gold bull market in full swing, this Fool argues that the falling Fresnillo share price may not remain…

Read more »

Investing Articles

2 FTSE 100 shares I’m avoiding like the plague right now

While the FTSE remains packed with opportunity, many of the index's blue-chip shares could be at risk as trade tariffs…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Here’s how an investor could aim for a million buying under 10 shares

Christopher Ruane explains why doing less, not more, of the right things could be the key to success as an…

Read more »

Investing Articles

Could this new risk cause a stock market crash?

Tariffs and a potential recession are two major stock market risks right now. But there’s another risk that concerns Edward…

Read more »