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 Sysco (NYSE: SYY) 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 Sysco.


What We Want to See


Pass or Fail?

Size Market cap > $10 billion $16.2 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 2 years Fail
Stock stability Beta < 0.9 0.71 Pass
  Worst loss in past five years no greater than 20% (23.5%) Fail
Valuation Normalized P/E < 18 14.28 Pass
Dividends Current yield > 2% 3.8% Pass
  5-year dividend growth > 10% 10.3% Pass
  Streak of dividend increases >= 10 years 40 years Pass
  Payout ratio < 75% 51.6% Pass
  Total score   8 out of 10

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

Sysco weighs in with a score of 8, showing that it has almost everything that conservative investors want to see in their retirement portfolios. Its healthy dividend history and attractive current valuation are particularly worthy of attention.

If you're a growth investor, then the food-service industry probably isn't your cup of tea. But serving restaurants, hotels, hospitals, and schools, Sysco has a wide-ranging business that touches many parts of the economy. Sysco dominates its competition, leaving much smaller distributors United Natural Foods (Nasdaq: UNFI) and Core-Mark Holding (Nasdaq: CORE) to try to find profitable niches within the industry.

To maintain its competitive advantage, Sysco has taken a page from the playbook of other food-related businesses. Just as Costco (Nasdaq: COST) and Target (NYSE: TGT) have turned to private-label offerings to create higher-margin sales, Sysco has developed its own brand of products to improve its profitability.

Lately, food inflation has begun to plague the company. With input costs on the rise, Sysco must either pass higher prices on to its customers or accept lower margins.

But the advantage of owning shares of an industry leader is that Sysco has dealt with similar problems before. Having gotten through the inflationary period of the late 1970s while maintaining its streak of annual dividend increases, Sysco has a proven track record. That's just one reason why it could make a great stock for retirees and other conservative 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.

Add Sysco to My Watchlist , which will aggregate our Foolish analysis on it and all your other stocks.

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.