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 Southern Copper (NYSE: SCCO) 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 Southern Copper.


What We Want to See


Pass or Fail?

Size Market cap > $10 billion $26.5 billion Pass
Consistency Revenue growth > 0% in at least four of five past years 4 years Pass
  Free cash flow growth > 0% in at least four of past five years 4 years Pass
Stock stability Beta < 0.9 1.53 Fail
  Worst loss in past five years no greater than 20% (50.5%) Fail
Valuation Normalized P/E < 18 16.49 Pass
Dividends Current yield > 2% 7.4% Pass
  5-year dividend growth > 10% 6.9% Fail
  Streak of dividend increases >= 10 years 2 years Fail
  Payout ratio < 75% 94.3% Fail
  Total score   5 out of 10

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

Southern Copper's score of five isn't as shiny as some of the metal it pulls out of the ground. Although the copper producer has seen strong growth in recent years, that growth has come with the volatility you'd expect to see from a cyclically oriented commodity stock.

Throughout the last decade, emerging-market expansion has brought huge investments in infrastructure. With that expansion has come increased demand for the raw materials that make it possible. As a component in pipes and electrical wiring, copper has played a major role in that expansion, and demand has vaulted not just for Southern Copper but also peers such as Freeport-McMoRan Copper & Gold (NYSE: FCX) and Rio Tinto (NYSE: RIO).

Recently, though, Southern Copper has hit a couple of roadblocks. Most recently, elections in the company's home market of Peru have raised fears that the new president of the country will push forward with plans to impose windfall mining taxes on producers. That would hit both Southern Copper and gold and silver miner Buenaventura (NYSE: BVN).

In addition, concerns about the sustainability of the global recovery have pulled copper prices well off their highs. After peaking above $4.60 per pound in February, copper has fallen back to around the $4 level. That has put a dent in the entire industry, as shares of Global X Copper Miners ETF (NYSE: COPX) show.

For retirees and other conservative investors, Southern Copper has a healthy dividend payout, but it represents most of its net income and fluctuates wildly with results. Combined with the big moves the shares have seen in recent years, Southern Copper won't give you a very smooth ride. However, if you have a tolerance for volatility and expect global growth to continue, Southern Copper might give you the returns you want.

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 Southern Copper 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.