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. Let's figure out what makes a great retirement-oriented stock, then examine whether Kimberly-Clark (NYSE: KMB) has what we're looking for.

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 Kimberly-Clark.


What We Want to See


Pass or Fail?

Size Market cap > $10 billion $26.1 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 0.42 Pass
  Worst loss in past five years no greater than 20% (21%) Fail
Valuation Normalized P/E < 18 15.74 Pass
Dividends Current yield > 2% 4.3% Pass
  5-year dividend growth > 10% 8% Fail
  Streak of dividend increases >= 10 years 39 years Pass
  Payout ratio < 75% 57.8% Pass
  Total score   7 out of 10

Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.

Kimberly-Clark wraps up a strong seven-point score. We've seen some slightly better scores from some of the consumer products maker's competitors, but Kimberly-Clark still has much of what conservative investors are looking for in a stock.

If you've ever blown your nose, you've probably run into Kimberly-Clark. It's the company behind Kleenex, one among the rare breed of brands whose names become the way everyone refers to the product. As a top-75 brand, Kleenex gives Kimberly-Clark a well-known way to lure new customers and keep existing ones.

In general, we've seen consumer-friendly companies do quite well on our retirement stock checklist. Johnson & Johnson (NYSE: JNJ) and Procter & Gamble (NYSE: PG) each scored eight points, while Colgate-Palmolive (NYSE: CL) managed an even more impressive score of nine. By contrast, Kimberly-Clark falls short of its peers in two main respects: Its stock fell more sharply during the 2008 bear market, and its dividend growth, while quite respectable, didn't meet the 10% threshold that the other stocks did.

Right now, Kimberly-Clark faces some headwinds as it has seen production costs rise as a result of higher commodity prices. But the company has responded with cost-cutting measures like restructuring its production plant network, which should help counter higher input costs.

Despite those challenges, Kimberly-Clark has a long history of rising to the task while rewarding shareholders with ever-increasing dividends. That's music to the ears of retirees and other conservative investors looking for a solid stock for 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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If you want to retire rich, you need to be confident that you've got the basics of your investment strategy down pat. See if you're on track by following the 13 Steps to Investing Foolishly.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. Kimberly-Clark, Johnson & Johnson, and Procter & Gamble are Motley Fool Income Investor recommendations. Johnson & Johnson is a Motley Fool Inside Value pick. The Fool and Motley Fool Alpha LLC own shares of Johnson & Johnson. 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 Fool has a disclosure policy.