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 Vodafone (Nasdaq: VOD) 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 Vodafone.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $152 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 2 years Fail
Stock stability Beta < 0.9 0.49 Pass
  Worst loss in past five years no greater than 20% (42.9%) Fail
Valuation Normalized P/E < 18 13.19 Pass
Dividends Current yield > 2% 4.7% Pass
  5-year dividend growth > 10% 11.3% Pass
  Streak of dividend increases >= 10 years 1 year Fail
  Payout ratio < 75% 38.5% Pass
       
  Total score   7 out of 10

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

With seven points, Vodafone puts in a strong performance. The British telecom has seen stagnant cash flow growth and some inconsistency in its stock price and dividends over the past several years, but long-term investors have been happy with the company's performance.

U.S. investors are used to the high yields that AT&T (NYSE: T) and Verizon (NYSE: VZ) generate for their shareholders. But the traits that make domestic telecom stocks such powerful tools for income-seeking investors also hold true for international telecoms. Vodafone weighs in with a dividend yield that's in the same league as its two U.S. rivals, and despite a one-year hiccup that broke the company's streak of rising dividends in U.S. dollar terms, the company has a long history of dividend growth that eclipses both Verizon and AT&T.

Vodafone has a big presence in Europe, which constitutes about three-quarters of its core business. That business provides good cash flow, although price competition has pressured the company's profits.

The company's growth potential, though, comes largely from its overseas strategy. Its minority stake in the Verizon Wireless partnership is a big asset, yet the company hasn't seen much return from it. While Verizon Wireless has been extremely successful in the United States, it has yet to pay out any dividends to its parent companies. When that happens, Vodafone's cash flow should see a nice bump.

In emerging markets, Vodafone has focused on South Africa and India as the countries with its biggest exposure, and it's getting millions of new subscribers as technology infrastructure improves.

With Tata Communications (NYSE: TCL) vying for Indian customers and China Mobile (NYSE: CHL) and America Movil (NYSE: AMX) already well positioned in other emerging markets, Vodafone won't get a free ride. But it has a shot to capture its share of some huge opportunities, and that growth potential, along with a good dividend, is enough to warrant consideration 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 Vodafone 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. Vodafone Group is a Motley Fool Inside Value recommendation. America Movil is a Motley Fool Global Gains selection. The Fool owns shares of China Mobile. 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.