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 Republic Services (NYSE: RSG) 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 Republic Services.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $11.5 billion Pass
Consistency Revenue growth > 0% in at least four of past five 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 0.89 Pass
  Worst loss in past five years no greater than 20% (18.9%) Pass
Valuation Normalized P/E < 18 17.47 Pass
Dividends Current yield > 2% 2.6% Pass
  5-year dividend growth > 10% 17.6% Pass
  Streak of dividend increases >= 10 years 7 years Fail
  Payout ratio < 75% 58.2% Pass
       
  Total score   8 out of 10

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

With eight points, Republic Services gives conservative investors a lot of what they want from a stock. The waste services company isn't the biggest in its industry, but it has already put together an impressive string of dividend growth while seeing its stock remain relatively stable even in a turbulent market.

Republic Services is the second-largest trash collector and landfill company in the U.S., trailing industry leader Waste Management (NYSE: WM). The company owes much of its growth advantage to its geography; Republic dominates Sunbelt cities like Las Vegas, which aren't as encumbered by union labor and political complications as their competitors elsewhere in the country. It also merged with competitor Allied Waste in 2008, which helped consolidate the industry into the two giants, with small niche companies like Waste Connections (NYSE: WCN) and Stericycle (Nasdaq: SRCL) picking up the crumbs.

Between Waste Management and Republic, both have many desirable attributes. But Republic has a bit cheaper of a valuation, has had somewhat faster growth, and has increased its dividend at a faster rate than Waste Management. Those are all things that conservative investors can appreciate.

All told, Republic barely passes on a few counts, which retirees who're thinking about investing in the stock should consider. But with an unusual service angle, Republic is worth considering as a diversifying addition to conservative retirement portfolios.

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. Republic Services and Waste Management are Motley Fool Income Investor choices. Stericycle is a Motley Fool Rule Breakers pick. The Fool owns shares of Waste Management, which is also a Motley Fool Inside Value selection. 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 adisclosure policy.