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 and then examine whether Oracle (Nasdaq: ORCL) 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. Many investors look for rapidly growing companies, but 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 quickly 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 Oracle.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $165.6 billion Pass
Consistency Revenue growth > 0% in at least four of five past years 5 years Pass
  Free cash flow growth > 0% in at least four of past five years 4 years Pass
Stock stability Beta < 0.9 1.11 Fail
  Worst loss in past five years no greater than 20% (21.5%) Fail
Valuation Normalized P/E < 18 24.01 Fail
Dividends Current yield > 2% 0.7% Fail
  5-year dividend growth > 10% 0.0% Fail
  Streak of dividend increases >= 10 years 0 years Fail
  Payout ratio < 75% 13.1% Pass
       
  Total score   4 out of 10

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

A score of 4 makes it clear that Oracle doesn't give conservative investors everything they're looking for in a stock. But the company has quietly stood out from many of its tech rivals by executing well on its business strategy and avoiding the landmines that some competitors have stepped on.

Oracle is best known for its application software. But unlike Microsoft's (Nasdaq: MSFT) ubiquitous offerings aimed at consumers, you may not know much about Oracle's products, which it aims largely at businesses and developers. Over the years, the company has compared well against rival SAP (NYSE: SAP) in the application space.

But that niche wasn't big enough for CEO Larry Ellison. Oracle's purchase of Sun Microsystems two years ago gave it the perfect entry into the hardware sector, setting up the company to go after IBM (NYSE: IBM) and Hewlett-Packard (NYSE: HPQ). The company's hiring of former HP CEO Mark Hurd only solidified that diversifying strategy.

Meanwhile, though, Oracle has had competitors try to flank its software strength. Cloud-based software companies such as salesforce.com (NYSE: CRM) are catering to customers who prefer to pay recurring fees for IT rather than make huge upfront investments in IT infrastructure.

Oracle is huge, but its shares can be volatile. Most importantly for retirees and other conservative investors, the company has refused to commit to a dividend-paying philosophy, making only token payments over the past couple of years. Until that situation changes, you may want to pass on Oracle despite its impressive growth.

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 Oracle 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 have 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 IBM, Microsoft, and Oracle. Motley Fool newsletter services have recommended buying shares of Microsoft and salesforce.com, creating a diagonal call position on Microsoft, and shorting salesforce.com. We Fools don't 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.