Now more than ever, a comfortable retirement depends on secure, stable investments. Unfortunately, the right stocks for retirement won't just fall into your lap. In this series, I look at 10 measures to show what makes a great retirement-oriented stock.

One of the most interesting things about investing is how sometimes, a company you've never heard of stands behind many of the products you see often. Church & Dwight (NYSE:CHD) is one of those companies, with popular brands including Arm & Hammer baking soda and laundry detergent, Trojan condoms, and Close-Up mouthwash. With investors concerned about a possible slowdown in the economy, is it time for the consumer-goods company to shine? Below, we'll revisit how Church & Dwight does on our 10-point scale.

The right stocks for retirees
With decades to go before you need to tap your investments, you can take greater risks, weighing the chance of big losses against the potential for mind-blowing returns. But as retirement approaches, you no longer have the luxury of waiting out a downturn.

Sure, you still want good returns, but you also need to manage your risk and protect yourself against bear markets, which can maul your finances at the worst possible time. The right stocks combine both of these elements in a single investment.

When scrutinizing a stock, retirees should look for:

  • Size. Most retirees would rather not take a flyer on unproven businesses. Bigger companies may lack their smaller counterparts' growth potential, but they do offer greater security.
  • Consistency. While many investors look for fast-growing companies, conservative investors want to see steady, consistent gains in revenue, free cash flow, and other key metrics. Slow growth won't make headlines, but it will help prevent the kind of ugly surprises that suddenly torpedo a stock's share price.
  • Stock stability. Conservative retirement investors prefer investments that move less dramatically than typical stocks, and they particularly want to avoid big losses. These investments will give up some gains during bull markets, but they won't fall as far or as fast during bear markets. Beta measures volatility, but we also want a track record of solid performance as well.
  • Valuation. No one can afford to pay too much for a stock, even if its prospects are good. Using normalized earnings multiples helps smooth out one-time effects, giving you a longer-term context.
  • 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 Church & Dwight.

Factor

What We Want to See

Actual

Pass or Fail?

Size

Market cap > $10 billion

$7.5 billion

Fail

Consistency

Revenue growth > 0% in at least four of five past years

5 years

Pass

 

Free cash flow growth > 0% in at least four of past five years

4 years

Pass

Stock stability

Beta < 0.9

0.34

Pass

 

Worst loss in past five years no greater than 20%

4.4%*

Pass

Valuation

Normalized P/E < 18

22.88

Fail

Dividends

Current yield > 2%

1.8%

Fail

 

5-year dividend growth > 10%

43.7%

Pass

 

Streak of dividend increases >= 10 years

16 years

Pass

 

Payout ratio < 75%

37.7%

Pass

       
 

Total score

 

7 out of 10

Source: S&P Capital IQ. Total score = number of passes. *This is a gain; Church & Dwight has not posted a loss in the past five years.

Since we looked at Church & Dwight last year, the company has kept its seven-point score. Moreover, the stock has continued its winning ways, rising 25% over the past year.

Church & Dwight shows many of the best characteristics of a consumer goods stock. With low stock-price volatility, solid growth, and rising dividends, the company has avoided some of the problems that its peers have faced. For instance, Kimberly-Clark (NYSE:KMB), by contrast, has only seen free-cash-flow growth in two of the past five years, and its stock has suffered losses of more than 20% within the past five years. Clorox (NYSE:CLX) has also seen more volatility in sales and cash flow growth in recent years.

But Church & Dwight isn't free from competitive pressure. It has fought a price war with Procter & Gamble (NYSE:PG) in laundry products, and given P&G's much larger size, it has more wherewithal to withstand a sustained fight than Church & Dwight. That has left peers Clorox and Colgate-Palmolive (NYSE:CL) in a somewhat more favorable situation as they watch from the sidelines.

Moreover, Church & Dwight's dividend yield isn't all that high. It has instead turned to buybacks as a way to return capital to investors, but with its stock's valuation at high levels, that may not be the smartest use of cash that it doesn't actually have.

For retirees and other conservative investors, Church & Dwight definitely has a lot going for it. The question is whether it makes sense to pay up for a solid stock with a good balance between growth prospects and defensive attributes. For many retirement investors, the answer is yes, and for them, Church & Dwight is a smart choice to represent the consumer goods sector.

Keep searching
Finding exactly the right stock to retire with is a tough task, but it's not impossible. Searching for the best candidates will help improve your investing skills, and teach you how to separate the right stocks from the risky ones.

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Fool contributor Dan Caplinger has no positions in the stocks mentioned above. The Motley Fool owns shares of Clorox. Motley Fool newsletter services recommend Kimberly-Clark and Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.