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 Novo Nordisk (NYSE: NVO) 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 Novo Nordisk.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $72.1 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 5 years Pass
Stock stability Beta < 0.9 0.07 Pass
  Worst loss in past five years no greater than 20% (21.4%) Fail
Valuation Normalized P/E < 18 30.71 Fail
Dividends Current yield > 2% 1.6% Fail
  5-year dividend growth > 10% 27.2% Pass
  Streak of dividend increases >= 10 years 10 years Pass
  Payout ratio < 75% 37.6% Pass
       
  Total score   7 out of 10

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

With seven points, Novo Nordisk is helping many conservative investors keep their portfolios healthy. The diabetes-drug maker has had some strong successes and has thus far been able to ward off the competition.

Novo Nordisk is best known for its diabetes drug Victoza, which got FDA approval in early 2010. The treatment improved on Amylin Pharmaceuticals (Nasdaq: AMLN) and Eli Lilly's (NYSE: LLY) Byetta, with Victoza requiring only once-daily injections versus Byetta's twice-daily regimen.

But Novo Nordisk does face some challenges on the near horizon. Amylin and Lilly, along with Alkermes (Nasdaq: ALKS), have been seeking approval of a rival diabetes drug, Bydureon, that would only require once-weekly injections. Although the FDA has been slow to approve the drug, Bydureon got a favorable ruling in Europe last month and could be a threat to Novo Nordisk sooner than later. In addition, MannKind (Nasdaq: MNKD) has been trying to get an inhaled-insulin drug approved, thus far without success.

The drug business requires constant innovation and defense of successful products, making it full of land mines for conservative investors. But with consistent dividend increases and revenue and free cash flow growth, Novo Nordisk has managed to navigate the tough waters of pharma fairly well, making it worth at least a closer look.

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. 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.