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 Procter & Gamble (NYSE: PG) 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 Procter & Gamble.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $181 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 0.51 Pass
  Worst loss in past five years no greater than 20% (13.8%) Pass
Valuation Normalized P/E < 18 21.38 Fail
Dividends Current yield > 2% 3% Pass
  5-year dividend growth > 10% 11.6% Pass
  Streak of dividend increases >= 10 years 57 years Pass
  Payout ratio < 75% 50.3% Pass
       
  Total score   8 out of 10

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

Procter & Gamble comes in strong with a score of 8. Over the years, the company has built its consumer products business into a powerhouse of American industry, selling its products throughout the world.

P&G has the pedigree that conservative investors want. Its brands are world-renowned, with its Gillette line ranking No. 13 on Interbrand's top 100 list in 2010. Financially, the company has been a profit powerhouse, generating steady cash flow that has allowed the company to raise its dividend uninterrupted every year since 1954.

P&G comes up short on valuation, with a higher earnings multiple than rival Kimberly Clark (NYSE: KMB). But given that Procter & Gamble saw less extreme share losses during the recent bear market than Kimberly Clark, many shareholders might feel comfortable paying up for greater safety.

Procter & Gamble isn't free of risk. Cheaper store brands are a constant threat, and Sears Holdings (Nasdaq: SHLD) and Costco (Nasdaq: COST) are just two of the retailers that have found some success going up against brand-name giants like P&G.

But P&G has faced down challenges before with great success. With the allure of emerging markets presenting new opportunities for growth, conservative investors don't have to give up entirely on the prospect of capital appreciation in the stock. On the whole, Procter & Gamble has a lot of potential for retirees or other investors looking for safety and security from their stock 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 doesn't own shares of the companies mentioned in this article. Procter & Gamble and Kimberly Clark are Motley Fool Income Investor selections. The Fool owns shares of Costco, which is a Motley Fool Inside Value recommendation and a Motley Fool Stock Advisor pick. 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.