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 Qualcomm (Nasdaq: QCOM) 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 Qualcomm.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $94.1 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 3 years Fail
Stock stability Beta < 0.9 0.97 Fail
  Worst loss in past five years no greater than 20% (11.3%) Pass
Valuation Normalized P/E < 18 29.19 Fail
Dividends Current yield > 2% 1.5% Fail
  5-year dividend growth > 10% 16.1% Pass
  Streak of dividend increases >= 10 years 8 years Fail
  Payout ratio < 75% 32.6% Pass
       
  Total score   5 out of 10

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

With just five points, Qualcomm doesn't look at first glance to be the sort of stock that conservative investors would gravitate to. But despite sporting a pricey valuation and a lower dividend yield than many investors want, the communications equipment giant has a lot going for it.

The market for mobile devices has been steadily heating up for years, and now with Apple's (Nasdaq: AAPL) iPhone and Google's (Nasdaq: GOOG) Android locked in mortal combat, it's hard to know which platform will be the eventual winner. But with its huge stable of patents, Qualcomm is poised to win no matter who ends up on top of the mobile market.

Moreover, even as U.S. telecoms AT&T (NYSE: T) and Verizon (NYSE: VZ) transition to 4G technology, 3G networks are still going to be popular for a long time to come. With emerging markets like India, China, and Latin America expected to see huge growth in 3G by 2014, Qualcomm won't see revenue dry up anytime soon.

Retirees and other conservative investors may prefer to see stocks with less volatility and a higher dividend yield. But even during the financial crisis, Qualcomm shares held up much better than the overall market. Qualcomm isn't for everyone, but if you have some tolerance for risk in your retirement portfolio, it's worth 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. The Motley Fool owns shares of Google, Apple, and Qualcomm. Motley Fool newsletter services have recommended AT&T, Apple, and Google, along with creating a bull call spread position in Apple. 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.