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 Petroleo Brasileiro (NYSE: PBR) 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 Petrobras.


What We Want to See


Pass or Fail?

Size Market cap > $10 billion $207.2 billion Pass
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 1 year Fail
Stock stability Beta < 0.9 0.79 Pass
  Worst loss in past five years no greater than 20% (58.5%) Fail
Valuation Normalized P/E < 18 7.94 Pass
Dividends Current yield > 2% 4.3% Pass
  5-year dividend growth > 10% 5.2% Fail
  Streak of dividend increases >= 10 years 0 years Fail
  Payout ratio < 75% 29.2% Pass
  Total score   6 out of 10

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

Petrobras has several of the factors that conservative investors like to find in stocks they own, although it falls short in a few categories as well. The company is certainly bargain priced at the moment, but its shares have been volatile, and some are concerned that emerging markets like Brazil may be overheating.

Petrobras is an integrated oil and gas company that's in an enviable position: It has a near-monopoly in its home country of Brazil. It has sizable operations on the mainland, with thousands of gas stations and 98% of the country's production and refining capacity.

But perhaps the company's biggest feature -- and the one that makes it stand out from U.S. oil giants ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) -- is the fact that it has huge opportunities for expansion. Petrobras has operated off Brazil's coast for decades and has been instrumental in some huge finds there. The company even had to do a massive equity offering of around $70 billion in order to further its deepwater development offshore. In contrast, Exxon and Chevron have plenty of cash but not always the means to deploy it as profitably.

One downside that Petrobras faces is concern about the health of emerging market economies. With iShares MSCI Brazil (NYSE: EWZ) down 7% since the beginning of the year, and shares of mining giant Vale (NYSE: VALE) off 10%, investors seem to be cooling to Latin America's dominant economy. Even with strong oil prices, Petrobras has underperformed its global peers.

With volatile energy markets and the free cash flow challenges that always come with companies that are investing heavily in expansion moves, Petrobras isn't exactly the sort of stock retirees and other conservative investors feel most comfortable with. But there's no denying that the company has some interesting opportunities -- ones that should perhaps push you toward taking a closer look at Petrobras.

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 Petrobras 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 ."