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 Campbell Soup (NYSE: CPB) 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 Campbell Soup.


What We Want to See


Pass or Fail?

Size Market cap > $10 billion $10.8 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 1 year Fail
Stock stability Beta < 0.9 0.25 Pass
  Worst loss in past five years no greater than 20% (13.6%) Pass
Valuation Normalized P/E < 18 15.44 Pass
Dividends Current yield > 2% 3.4% Pass
  5-year dividend growth > 10% 9.8% Fail
  Streak of dividend increases >= 10 years 7 years Fail
  Payout ratio < 75% 47.3% Pass
  Total score   7 out of 10

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

Campbell Soup dishes up a score of 7. That gives conservative investors a warm feeling in their bellies, with many of the traits that they like to see in the stocks they own in their retirement portfolios.

Campbell obviously makes soup, but it has a wide range of other products as well, ranging from Pace salsa and Pepperidge Farm baked goods to V8 juice. It's a global leader with product sales in more than 150 countries, and it has targeted emerging markets like China and Russia as promising areas to focus on potential growth.

Like competing food giants General Mills (NYSE: GIS), Kraft Foods (NYSE: KFT), and Heinz (NYSE: HNZ), Campbell offers a healthy dividend yield above 3% and a strong history of payout growth that, in Campbell's case, just barely falls short of our 10% benchmark. But also like its competitors, Campbell has faced troubles maintaining cash flow; free cash flow has dropped in four of the past five years and stands about 8% below its levels from five years ago.

The specter of rising food prices may serve as a short-term concern for Campbell. But with those fears potentially overblown, long-term investors should see it merely as a temporary blip. As long as the iconic soup-maker can leverage its strong brand around the world, Campbell should continue to give retirees and other conservative investors the stability and income they need.

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 Campbell Soup 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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.