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 Unilever (NYSE: UL) 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 Unilever.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $89.5 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 2 years Fail
Stock stability Beta < 0.9 0.44 Pass
  Worst loss in past five years no greater than 20% (36.6%) Fail
Valuation Normalized P/E < 18 18.55 Fail
Dividends Current yield > 2% 4.1% Pass
  5-year dividend growth > 10% 6.2% Fail
  Streak of dividend increases >= 10 years 11 years Pass
  Payout ratio < 75% 54.7% Pass
       
  Total score   6 out of 10

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

With six points, Unilever doesn't entirely clean up on this scorecard, but it gives conservative investors much of what they like to see in a stock. The diversified consumer products company covers a lot of bases within the industry and is doing its best to find promising areas for growth.

Unilever has its hand in a number of niches within the consumer space. From soup and ice cream to soap and surface cleaners, Unilever sells a variety of products around the world.

Recently, Unilever has pegged its future to its prospects in emerging markets. But it's far from alone in trying to penetrate lucrative markets in China and elsewhere. On the food side of the business, Kraft Foods (NYSE: KFT) has been introducing new breakfast items, while oral-care products from Colgate-Palmolive (NYSE: CL) have challenged Unilever's personal care segment.

Unilever's success has allowed it to boost its dividends strongly . Although its dividend growth rate over the past five years falls short against General Mills (NYSE: GIS) and Heinz (NYSE: HNZ), Unilever came through with a 15% raise for its dividend in 2011.

Where the company falls short is in its patchy free-cash-flow growth and somewhat rich valuation. But with a 4% dividend yield and the prospects for future growth, retirees and other conservative investors should at least consider paying up for shares of Unilever.

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 Unilever 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 Unilever and Heinz. 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.