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 AT&T (NYSE: T) 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 AT&T.


What We Want to See


Pass or Fail?

Size Market cap > $10 billion $169 billion Pass
Consistency Revenue growth > 0% in at least four of past five 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 0.65 Pass
  Worst loss in past five years no greater than 20% (28.1%) Fail
Valuation Normalized P/E < 18 14.88 Pass
Dividends Current yield > 2% 6% Pass
  5-year dividend growth > 10% 5.4% Fail
  Streak of dividend increases >= 10 years 27 years Pass
  Payout ratio < 75% 49.9% Pass
  Total score   7 out of 10

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

AT&T scores well as a stock that gives retirees and other conservative investors what they want. With an attractive dividend yield near the top of the list of dividend-paying S&P 500 companies and a reasonable valuation, the company deserves a closer look.

Telecom companies have long been a favorite of conservative investors. Companies like Frontier Communications (NYSE: FTR) and Windstream (Nasdaq: WIN ), which have largely pinned their future on milking as much profit from obsolescent rural landlines as they can while the getting's good, have sustained big dividend payouts for a long time.

AT&T, however, hasn't given up on the future. As a major player in the wireless industry, AT&T is going head to head with Verizon (NYSE: VZ) and Sprint (NYSE: S) as interest in smartphones and tablets continues to soar. Although the company is smarting from its loss of exclusivity for the iPhone, AT&T is increasingly looking to Android-powered devices for revenue. And despite the fact that investors weren't happy with the company's guidance when it reported quarterly results last month, it's important for AT&T to continue to keep up with the latest technology and decrease its reliance on the iPhone.

Given its new growth perspective, AT&T isn't quite as stable a stock as it used to be. But it still has below-average volatility and the fundamental backing to help conservative investors sleep at night. That plus a healthy quarterly payout for shareholders is enough to make it a good retirement stock for many investors.

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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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.