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 and then examine whether Bemis (NYSE: BMS) 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 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 Bemis.


What We Want to See


Pass or Fail?

Size Market cap > $10 billion $3.36 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 0.78 Pass
  Worst loss in past five years no greater than 20% (17.2%) Pass
Valuation Normalized P/E < 18 13.92 Pass
Dividends Current yield > 2% 3.1% Pass
  5-year dividend growth > 10% 5.0% Fail
  Streak of dividend increases >= 10 years 28 years Pass
  Payout ratio < 75% 45.3% 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 7, Bemis has many of the attractive characteristics of stocks that conservative investors like. Bemis may not be a household name to most people, but you probably see the company's products every day.

Bemis makes packaging that you find in food, health-care, and other consumer products worldwide. Unlike competitors Sonoco Products (NYSE: SON) and Smurfit-Stone Container (Nasdaq: SSCC), Bemis specializes in flexible packaging rather than that based on all-purpose cardboard, paper, and metal materials.

Lately, Bemis has struggled to find significant growth. Free cash flow has been down for two years running, and revenue has largely been flat for years when you discount the company's purchase of the Alcan packaging unit from Rio Tinto (NYSE: RIO) last year.

Despite the slowness of the business, though, Bemis has given retirees and other conservative investors a fairly smooth ride, along with a healthy dividend yield of more than 3%. Even more impressively, the company has maintained a long streak of dividend increases, qualifying it for status as a Dividend Aristocrat. Those increases aren't the biggest in the stock market, but even so, Bemis is worth a look for a retirement 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 Bemis 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 have the basics of your investment strategy down pat. See whether you're on track by following the 13 Steps to Investing Foolishly.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. Sonoco Products is a Motley Fool Income Investor selection. We Fools don't 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.