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 Bristol-Myers Squibb (NYSE: BMY) 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 Bristol-Myers Squibb.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $46.9 billion Pass
Consistency Revenue growth > 0% in at least four of five past years 3 years Fail
  Free cash flow growth > 0% in at least four of past five years 5 years Pass
Stock stability Beta < 0.9 0.61 Pass
  Worst loss in past five years no greater than 20% (6%) Pass
Valuation Normalized P/E < 18 11.32 Pass
Dividends Current yield > 2% 4.9% Pass
  5-year dividend growth > 10% 2.9% Fail
  Streak of dividend increases >= 10 years 4 years Fail
  Payout ratio < 75% 71% Pass
       
  Total score   7 out of 10

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

With a score of seven, Bristol-Myers Squibb has a lot of attractive qualities for conservative investors. The stock's dividend growth isn't as strong as we like to see, but consistent growth in free cash flow and share price stability at reasonable valuations are attributes that are quite appealing.

Of course, we've seen plenty of pharma stocks get good grades for retirement portfolios. Abbott Labs (NYSE: ABT), Novartis (NYSE: NVS), and AstraZeneca (NYSE: AZN) are among those that actually got higher scores. Abbott had more solid revenue growth and a long dividend streak, while AstraZeneca gave investors better yields and dividend growth at a cheaper valuation. Novartis fell just a single point short of perfection, with low volatility and strong dividends.

Given that, how can Bristol-Myers Squibb distinguish itself from the crowd? The key is in the company's drug pipeline. Just last month, the Food and Drug Administration approved melanoma drug Yervoy, for which the company plans to charge a whopping $120,000 for a four-course regimen. That sounds steep, but with Dendreon (Nasdaq: DNDN) charging $93,000 for its prostate cancer treatment, it's not out of the ballpark, and it could do a lot toward helping Bristol's bottom line.

It's important for retirement investors not to fall in love with particular industries, and with so many prospective drugmakers looking good on this scale, you shouldn't pick them all. But if you think Bristol-Myers Squibb has the potential to beat its competitors as everyone scrambles to develop new blockbusters, then it could make a good addition to your portfolio.

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 Bristol-Myers Squibb 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. Novartis is a Motley Fool Global Gains pick. The Fool and Motley Fool Alpha LLC own shares of Abbott Laboratories. 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.