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 Siemens (NYSE: SI) 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 Siemens.


What We Want to See


Pass or Fail?

Size Market cap > $10 billion $110.3 billion Pass
Consistency Revenue growth > 0% in at least four of past five 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 1.00 Fail
  Worst loss in past five years no greater than 20% (52.5%) Fail
Valuation Normalized P/E < 18 15.92 Pass
Dividends Current yield > 2% 3.0% Pass
  5-year dividend growth > 10% 14.9% Pass
  Streak of dividend increases >= 10 years 2 years Fail
  Payout ratio < 75% 43.2% Pass
  Total score   6 out of 10

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

Siemens scores six points, which shows that the company gives conservative investors some but not all of the most attractive characteristics of a stock for a retirement portfolio. The industrial giant covers a broad range of industries, which carries both benefits and potential hazards.

Siemens is an incredibly broad-based conglomerate. Along with General Electric (NYSE: GE), Siemens is one of the biggest players in the alternative energy generation market, with a presence in both wind and nuclear. It has a joint venture with Nokia (NYSE: NOK) to supply technology infrastructure equipment. With its health-care division, it goes up against Abbott Labs (NYSE: ABT) in producing everything from hearing aids to diagnostic lab tests and medical imaging devices. You'll even find an insurance business locked inside the company.

Needless to say, the global recession over the past few years has hurt Siemens' overall business. Although its stock hasn't been as volatile as GE's, Siemens still lost half its value during the 2008 bear market.

Because of its breadth, it's hard to compare Siemens to its more focused competitors. Inevitably, though, Siemens will act as a proxy for the strength of German stocks as well as the viability of the European economic zone more broadly.

Despite having a healthy dividend and trading at a reasonable valuation, Siemens hasn't given investors the smoothest ride in recent years. But for retirees and other conservative investors seeking exposure to the Eurozone even in its time of crisis, Siemens may be a good way to get it.

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 Siemens 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 ."

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.