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 ConocoPhillips (NYSE: COP) 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 ConocoPhillips.


What We Want to See


Pass or Fail?

Size Market cap > $10 billion $103.1 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 4 years Pass
Stock stability Beta < 0.9 1.15 Fail
  Worst loss in past five years no greater than 20% (39.8%) Fail
Valuation Normalized P/E < 18 10.23 Pass
Dividends Current yield > 2% 3.6% Pass
  5-year dividend growth > 10% 12.4% Pass
  Streak of dividend increases >= 10 years 11 years Pass
  Payout ratio < 75% 27.5% Pass
  Total score   7 out of 10

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

ConocoPhillips collects seven points on our tests. Although the stock has been unquestionably volatile in recent years, it still has much of what conservative investors like to see from retirement-oriented stocks.

Many of the largest oil companies in the world have been moving forward by growing even larger. With ExxonMobil (NYSE: XOM) having bought gas giant XTO Energy and Chevron (NYSE: CVX) going for Atlas Energy, consolidation has been in favor lately. But Conoco has gone the other direction, divesting itself of a huge stake in Russian oiler Lukoil as well as other non-core assets. Earlier this year, Conoco said it would sell 15% of an Australian liquefied natural gas project to Sinopec (NYSE: SNP).

Unfortunately, some underperforming properties haven't been easy to get rid of. The Rockies Express pipeline, which Conoco shares with Kinder Morgan Energy Partners (NYSE: KMP) and Sempra Energy (NYSE: SRE), hasn't generated returns as high as the consortium had hoped, yet Conoco had to defer a planned sale due to lack of interest.

Nevertheless, with oil prices remaining stubbornly high, having energy stocks in your portfolio helps hedge against higher energy costs retirees and others face. Although you may have to stomach more volatility than you would with other oil stocks, Conoco provides the dividend income and growth that you may want for your 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.

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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.