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 General Mills (NYSE: GIS) 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 General Mills.


What We Want to See


Pass or Fail?

Size Market cap > $10 billion $23.4 billion Pass
Consistency Revenue growth > 0% in at least four of five past years 5 years Pass
  Free cash flow growth > 0% in at least four of past five years 1 year Fail
Stock stability Beta < 0.9 0.21 Pass
  Worst loss in past five years no greater than 20% 1.6%* Pass
Valuation Normalized P/E < 18 16.84 Pass
Dividends Current yield > 2% 3% Pass
  5-year dividend growth > 10% 10.4% Pass
  Streak of dividend increases >= 10 years 7 years Fail
  Payout ratio < 75% 42.8% Pass
  Total score   8 out of 10

Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes. *This figure is a gain; General Mills stock did not suffer a loss during the past five years.

General Mills delivers a tasty score of 8. Certainly in recent years, it has done a great job of avoiding losses in a bumpy stock market and has begun to demonstrate a commitment toward rewarding shareholders with higher dividend payouts.

Within the food industry, General Mills is striving to become top dog. It has produced more consistent revenue growth and has had less volatile share prices than Kellogg (NYSE: K). And even though Kraft Foods (NYSE: KFT) is much bigger in terms of sales and market cap, General Mills trades at a much cheaper earnings multiple than Kraft.

The elephant in the room for General Mills is the prospect of food inflation. Along with Kraft and ConAgra (NYSE: CAG), General Mills has noted that higher costs for the raw food that the company uses to make its products are already having an impact on profitability and could continue to do so in the future. In response, the company has said it intends to pass on some of those higher costs to its customers in the form of higher prices.

Despite current challenges, though, the company's long history of dealing with the ups and downs of the economy suggests that General Mills is up to the task this time around. For retirees and other conservative investors, the stability that General Mills has shown would make a great part of an investor's complete breakfast.

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 General Mills 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.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. Kellogg is a Motley Fool Income Investor 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.