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 Occidental Petroleum (NYSE: OXY) 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 Occidental Petroleum.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $85.3 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 0.94 Fail
  Worst loss in past five years no greater than 20% (20.7%) Fail
Valuation Normalized P/E < 18 16.66 Pass
Dividends Current yield > 2% 1.8% Fail
  5-year dividend growth > 10% 19% Pass
  Streak of dividend increases >= 10 years 9 years Fail
  Payout ratio < 75% 23.9% Pass
       
  Total score   5 out of 10

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

Given a score of just 5, Occidental Petroleum may not look like the sort of stock conservative investors would want to see in their portfolios. But with the oil company just barely missing points on several metrics, it's definitely worth a closer look.

Occidental isn't as much of a household name as some of its big oil peers, but it's the nation's fourth-largest oil company and the biggest producer of crude in the lower 48. Lately, its business has been strong. In its most recent quarter, the company saw revenue rise 25% with production volumes also rising. But like oil giants ExxonMobil (NYSE: XOM) and Royal Dutch Shell (NYSE: RDS-A), Occidental gets a good chunk of its sales from its chemical segment, which saw earnings rise sevenfold from year-ago levels.

But Occidental isn't content with its current position. Late last year, the company followed the lead of Williams (NYSE: WMB) and Hess (NYSE: HES) by buying a substantial amount of property in the Bakken oil play of North Dakota. It has also been willing to take on substantial risk by drilling in places like Iraq and Colombia.

One concern, though, comes from changes at the top. Going forward, Occidental will have a new leader, as outgoing CEO Ray Irani leaves under the shadow of shareholder revolt over excessive pay.

Despite new management, Occidental is in a strong position to enjoy the benefits of high oil prices. With a quickly rising dividend that falls just short of our 2% target yield and stock volatility that just misses our guidelines, retirees and other conservative investors should take a look to see if Occidental deserves a place in their portfolios.

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 Occidental Petroleum 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. 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.