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 Clorox (NYSE: CLX) 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 Clorox.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $9.7 billion Fail
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 3 years Fail
Stock stability Beta < 0.9 0.42 Pass
  Worst loss in past five years no greater than 20% (12.1%) Pass
Valuation Normalized P/E < 18 17.19 Pass
Dividends Current yield > 2% 3.1% Pass
  5-year dividend growth > 10% 13.7% Pass
  Streak of dividend increases >= 10 years 34 years Pass
  Payout ratio < 75% 51.5% Pass
       
  Total score   8 out of 10

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

With 8 points, Clorox has a lot of what conservative investors are looking for in a stock. Clorox isn't as big as many of its rivals, but it already has a long history of solid dividend growth and trades at a reasonable valuation.

Everyone knows Clorox for its trademark bleach. But Clorox has a full line of products that consumers recognize, ranging from Liquid-Plumr and Armor All to Brita water filters.

The company faces plenty of competition in the cleaning space. Larger companies like Colgate-Palmolive (NYSE: CL) and privately held SC Johnson have a strong presence, requiring Clorox to work hard to differentiate its products.

In another weakness, Clorox gets more than a quarter of its revenue from a single customer: Wal-Mart (NYSE: WMT). With other consumer-products giants such as Procter & Gamble (NYSE: PG) and Church & Dwight (NYSE: CHD) clamoring for shelf space from the nation's top retailer, Clorox faces the ongoing battle of defending its turf.

But unlike its bigger rivals, Clorox still has room to grow. That isn't quite as important to retirees and other conservative investors, but with a dividend yield topping 3%, and more than three decades of consistent payout hikes, Clorox doesn't slouch on that score, either. If you want to mix in some mid-cap exposure to your retirement portfolio, you might well clean up by owning Clorox.

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. Clorox, Procter & Gamble, and Wal-Mart are Motley Fool Income Investor picks. Motley Fool Options has recommended a diagonal call position on Wal-Mart, which is also a Motley Fool Inside Value and Motley Fool Global Gains choice. The Fool owns shares of Wal-Mart. 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.