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 Dell (Nasdaq: DELL) 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 Dell.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $30.9 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 2 years Fail
Stock stability Beta < 0.9 1.42 Fail
  Worst loss in past five years no greater than 20% (58.2%) Fail
Valuation Normalized P/E < 18 14.87 Pass
Dividends Current yield > 2% 0% Fail
  5-year dividend growth > 10% 0% Fail
  Streak of dividend increases >= 10 years NM NM
  Payout ratio < 75% NM NM
       
  Total score   2 out of 8

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

Dell only manages to score two points. Although the computer maker made some retirement investors rich during its heyday, Dell doesn't look appropriate for conservative investors seeking dividend income and share price stability.

During the 1990s, Dell's stock soared as personal computers took over the technology marketplace. But more recently, Dell and archrival Hewlett-Packard (NYSE: HPQ) have had to look elsewhere for profitable business, as the PC market has turned into a commodity business. Currently, Dell earns just 3% of its operating profits from its consumer segment.

Even worse, PCs have started to give way to tablets and other computing solutions. While Apple (Nasdaq: AAPL) has profited mightily from the rise of the iPad, the shift has hurt PC-dependent companies across the board, from hardware suppliers like Dell and Intel (Nasdaq: INTC) to software giant Microsoft (Nasdaq: MSFT).

After impressive performance, Dell shares have gone nowhere, losing a third of their value in the past decade. Combined with a stubborn resistance to pay a dividend even as some of its tech peers give in to shareholders' need for income, Dell has made it pretty clear that retirees and other conservative investors can't expect to get what they want from the stock.

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 Dell 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. Intel and Microsoft are Motley Fool Inside Value choices. Apple is a Motley Fool Stock Advisor recommendation. Intel is a Motley Fool Income Investor recommendation. Motley Fool Options has recommended a bull call spread position on Apple and diagonal call positions on Intel and Microsoft. The Fool has bought calls on Intel and owns shares of Apple, Intel, and Microsoft. Alpha Newsletter Account LLC owns shares of Microsoft. 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.