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 CenturyLink (NYSE: CTL) 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 CenturyLink.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $25.8 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 4 years Pass
Stock stability Beta < 0.9 0.71 Pass
  Worst loss in past five years no greater than 20% (29.6%) Fail
Valuation Normalized P/E < 18 13.18 Pass
Dividends Current yield > 2% 6.7% Pass
  5-year dividend growth > 10% 64.3% Pass
  Streak of dividend increases >= 10 years 37 years Pass
  Payout ratio < 75% 97.3% Fail
       
  Total score   7 out of 10

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

With seven points, CenturyLink has much of what conservative investors like to see in a stock. The stock hasn't been bulletproof in recent years, but its high yield makes up for some concerns about future growth.

As a telecom that focuses on the rural landline business, CenturyLink can't claim to be in the most forward-looking niche of the telecom sector. But like fellow rural telecoms Frontier Communications (NYSE: FTR) and Windstream (Nasdaq: WIN), CenturyLink sports one of the highest dividend yields in the S&P 500. And unlike its two rivals , CenturyLink pays its dividend without overspending its earnings; both Frontier and Windstream have far higher payout ratios, even though CenturyLink's also exceeds our 75% threshold.

In April, the company at long last finished its acquisition of Qwest Communications. The question, though, is whether it can leverage its new position as the nation's No. 3 telecom into the more lucrative growth areas of providing IP and broadband service. To that end, CenturyLink has developed a "3-B" strategy to try to catch up to the all-inclusive packages that AT&T (NYSE: T) and Verizon (NYSE: VZ) offer. It may take awhile for the company to execute on that plan while also finding synergies from the new acquisition, but things look promising for now.

CenturyLink's legacy business may not be exciting, but it's the sort of cash cow that retirees and other conservative investors like to see. As long as the company can avoid watching its revenues shrink to nothing, CenturyLink is worth considering as a high-income part of a retirement portfolio.

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 CenturyLink 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. Motley Fool newsletter services have recommended buying shares of AT&T. 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.