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.

Thomson Reuters (NYSE:TRI) is a hugely useful source of news and information, especially in the financial sector. But news organizations have struggled to find ways to monetize their offerings. How has Thomson Reuters done at squeezing the most value from their content? Below, we'll revisit how Thomson Reuters 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 Thomson Reuters.

Factor

What We Want to See

Actual

Pass or Fail?

Size

Market cap > $10 billion

$22.5 billion

Pass

Consistency

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

3 years

Fail

 

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

4 years

Pass

Stock stability

Beta < 0.9

0.39

Pass

 

Worst loss in past five years no greater than 20%

(28.9%)

Fail

Valuation

Normalized P/E < 18

22.74

Fail

Dividends

Current yield > 2%

4.7%

Pass

 

5-year dividend growth > 10%

5.9%

Fail

 

Streak of dividend increases >= 10 years

19 years

Pass

 

Payout ratio < 75%

NM

NM

       
 

Total score

 

5 out of 9

Source: S&P Capital IQ. NM = not meaningful due to negative GAAP earnings. Total score = number of passes.

Since we looked at Thomson Reuters last year, the company has dropped a point, due to its earnings having gone negative after a big goodwill impairment charge. The stock has largely treaded water over the past year, with flat performance for its stock.

Thomson Reuters is arguably best known for its free news via Reuters.com, but it also provides premium information on specialized topics including tax and compliance to a wide array of customers. It also provides market information on everything from stocks and bonds to commodities and foreign exchange.

That breadth helped put Thomson in a somewhat awkward position over the summer, when news hit that Barclays (NYSE:BCS) had participated in a scheme to fix LIBOR benchmark interest rates. As the agent responsible for compiling information from member banks, which included Barclays as well as Bank of America (NYSE:BAC) and Citigroup (NYSE:C), and then calculating appropriate LIBOR rates from the submissions. For its part, Thomson has insisted that its LIBOR team informed the British Bankers' Association of implausible submissions, although the BBA questioned whether Thomson's efforts rose to the level of explicit warnings.

In its most recent quarter, Thomson Reuters posted mixed performance. Revenue fell 7%, but the company managed a slight improvement of 2% on the bottom line. Thomson's CEO chose not to comment on rumors that the company might try to buy the Financial Times from Pearson (NYSE:PSO). But many believe such a combination would be beneficial to both companies as Pearson moves toward the educational side of its business.

For retirees and other conservative investors, Thomson's steady payout growth and healthy dividend yield are attractive reasons to own the stock. At current valuations, though, retirement investors may prefer to wait for a price decline before diving in and adding Thomson to their portfolios.

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 Bank of America and Citigroup. 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.