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. As part of an ongoing series, I'm looking today at 10 measures to show whether Statoil (NYSE:STO) makes a great retirement-oriented stock.

Statoil isn't a household name among U.S. investors, but the Norwegian oil giant has a strong presence throughout the world energy markets. Yet with its proximity to the troubled economies of Europe, Statoil has some investors worried about the potential impact of further eurozone troubles on the company. Below, we'll revisit how Statoil 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 Statoil.

Factor

What We Want to See

Actual

Pass or Fail?

Size

Market cap > $10 billion

$77.4 billion

Pass

Consistency

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

4 years

Pass

 

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

3 years

Fail

Stock stability

Beta < 0.9

0.53

Pass

 

Worst loss in past five years no greater than 20%

(45.1%)

Fail

Valuation

Normalized P/E < 18

3.97

Pass

Dividends

Current yield > 2%

4.9%

Pass

 

5-year dividend growth > 10%

10%

Pass

 

Streak of dividend increases >= 10 years

2 years

Fail

 

Payout ratio < 75%

30%

Pass

       
 

Total score

 

7 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Statoil last year, the company has stuck with its seven-point score for the third year in a row. The stock, however, has sputtered, losing about 5% of its value over the past year.

Much of the reason for Statoil's weakness over the past year comes from a simple fact of geography. Investors have been extremely nervous about instability in the eurozone, and even though oil giants including France's Total (NYSE:TOT), Italy's Eni (NYSE:E), and Norway's Statoil all own energy properties located around the world, their shares have nevertheless traded as though they were overly exposed to their home markets. Moreover, Norway is among the most stable of Europe's national economies, making the cheap valuations even more ridiculous.

To prove its value to investors, Statoil has been pushing hard to obtain new properties with high production potential. Last month, the company won 15 exploration leases in the Gulf of Mexico, with one bid for nearly $82 million on a single high-profile block, and brought its total exposure in the gulf to 340 leases. Off the coast of Tanzania, meanwhile, Statoil and partner ExxonMobil (NYSE:XOM) discovered natural gas in a block with estimates of between 15 trillion and 17 trillion cubic feet.

Statoil also hasn't been afraid to get help with its own lucrative prospects close to home. The company has gotten ConocoPhillips (NYSE:COP) to commit to a $4 billion investment plan focused on the Greater Ekofisk Area, in a joint venture with Statoil and Total. As long as high Brent oil prices persist, the better margins available from Norwegian crude will give Statoil a chance to form similarly lucrative partnerships with other industry players.

For retirees and other conservative investors, a 5% dividend yield with fairly consistent growth at an extremely attractive valuation is hard to pass up. Given the combination of investor aversion to energy stocks and to companies in Europe, Statoil arguably trades at a double discount that makes it a smart pick-up at current levels.

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 position in any stocks mentioned. The Motley Fool recommends Statoil and Total. 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.