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.

Few stocks have helped more people get closer to a rich retirement over the past decade than Apple (NASDAQ:AAPL). With its revolutionary devices, the company has helped transform the nature of computing to a mobile-based model, and it has rewarded longtime shareholders with massive gains. But for those considering buying the stock now, does Apple still make a smart bet? Below, we'll revisit how Apple 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 Apple.

Factor

What We Want to See

Actual

Pass or Fail?

Size

Market cap > $10 billion

$554 billion

Pass

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

5 years

Pass

Stock stability

Beta < 0.9

1.21

Fail

 

Worst loss in past five years no greater than 20%

(56.9%)

Fail

Valuation

Normalized P/E < 18

16.04

Pass

Dividends

Current yield > 2%

1.8%

Fail

 

5-year dividend growth > 10%

NM

NM

 

Streak of dividend increases >= 10 years

1 year

Fail

 

Payout ratio < 75%

6%

Pass

       
 

Total score

 

5 out of 9

Source: S&P Capital IQ. NM = not meaningful; Apple started paying a dividend in August 2012. Total score = number of passes.

Since we looked at Apple last year, the company has picked up a point, with its brand-new dividend helping to give it a meaningful payout ratio. The stock has continued to soar, with a better than 50% jump over the past year.

Apple continues to dominate the discussion in the mobile-device world. With the iPhone 5 revamp of its popular smartphone series, the company continues to draw crowds and huge sales, leading to supply constraints for weeks. Its long-awaited release of the iPad Mini to compete directly against smaller tablets from Amazon.com (NASDAQ:AMZN) and Google (NASDAQ:GOOGL) has also gone reasonably well.

But concerns about the sustainability of Apple's competitive edge have led to a big correction in the stock over the past few months, with Apple losing a quarter of its value at its recent lows. The Apple Maps debacle also proved damaging to the company's reputation even with the legitimate goal of gaining independence from Google's competing mapping product. Moreover, third-quarter results came in exceedingly weak, with the traditional pre-release lull in sales coming from customers waiting for upgraded products.

Short-term concerns aside, Apple has proven throughout the past decade that it has the ability to build on past success and move in new and unexpected directions. Moreover, it has huge companies banking on its future, with Sprint Nextel (NYSE:S) continuing to work off its commitment to sell $15.5 billion in iPhones over a four-year period. Verizon (NYSE:VZ) has also been more than willing to accept weaker margins in order to compete with rival AT&T in attracting Apple-device customers.

For retirees and other conservative investors, the introduction of Apple's dividend earlier this year was a huge step in the right direction. Even with its big gain in stock price, Apple's recent correction leaves it at attractive valuations, and the company still has substantial growth prospects even in a highly competitive industry. If Apple has ever interested you as an investment, now is a sterling opportunity to consider adding it to a long-term portfolio.

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 owns shares of Apple. The Motley Fool owns shares of Apple, Amazon.com, and Google. Motley Fool newsletter services recommend Apple, Amazon.com, Google, and AT&T. 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.