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 Becton Dickinson (NYSE: BDX) 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 Becton Dickinson.


What We Want to See


Pass or Fail?

Size Market cap > $10 billion $17.8 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 4 years Pass
Stock stability Beta < 0.9 0.56 Pass
  Worst loss in past five years no greater than 20% (16.9%) Pass
Valuation Normalized P/E < 18 18.68 Fail
Dividends Current yield > 2% 2% Pass
  5-year dividend growth > 10% 15% Pass
  Streak of dividend increases >= 10 years 38 years Pass
  Payout ratio < 75% 26.5% Pass
  Total score   9 out of 10

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

Becton Dickinson scores an appealing nine points, giving conservative investors just about everything they could ask for in a stock. Although shares aren't as cheap as we'd like to see, the combination of a healthy dividend that has grown steadily for almost four decades along with a share price that's far less volatile than the market makes for a good stock for a retirement portfolio.

Becton makes a variety of medical supplies and equipment, diagnostic products, and laboratory equipment for the health-care industry. Its products range from simple needles and syringes to state-of-the-art bioscience research tools.

We're all familiar with how health-care stocks have had a difficult road recently. With new reforms and a tough economy, health care is all about cost cutting. That punished higher-end instrument makers like Intuitive Surgical (Nasdaq: ISRG) and Medtronic (NYSE: MDT) last year. But Becton benefits from its diversified business that includes products for which there's constant demand.

Becton doesn't have the highest yield in its space; both Abbott Labs (NYSE: ABT) and Baxter International (NYSE: BAX) have bigger payouts. But Becton's consistency in dividend hikes comes in part from its conservative payout strategy: its payout ratio to earnings is about half what those competitors pay. That gives it plenty of room to keep hiking dividends well into the future.

Becton may not be the most exciting stock in the world, but that's not what smart investors want. Rather, Becton should continue to deliver the slow but steady success that retirees and other conservative investors crave.

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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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. Becton Dickinson is a Motley Fool Inside Value recommendation. Intuitive Surgical is a Motley Fool Rule Breakers recommendation. The Fool owns shares of Abbott Labs and Medtronic. Motley Fool Alpha LLC owns shares of Abbott Lab s. 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.