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 Marathon Oil (NYSE: MRO) 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 Marathon Oil.


What We Want to See


Pass or Fail?

Size Market cap > $10 billion $23.4 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 2 years Fail
Stock stability Beta < 0.9 1.17 Fail
  Worst loss in past five years no greater than 20% (54.0%) Fail
Valuation Normalized P/E < 18 5.94 Pass
Dividends Current yield > 2% 3.0% Pass
  5-year dividend growth > 10% 7.5% Fail
  Streak of dividend increases >= 10 years 1 year Fail
  Payout ratio < 75% 22.9% Pass
  Total score   4 out of 10

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

With just four points, Marathon Oil doesn't seem to give conservative investors the stability and growth they like from a stock. The company has traded more choppily than some of its peers, but a recent spinoff may help the company refocus on its core business.

To some investors, all energy companies look alike. But their stocks don't always trade in tandem. Even over the past five years, which have brought huge volatility to the energy sector, oil giant ExxonMobil (NYSE: XOM) and top contender Chevron (NYSE: CVX) have offered relatively low betas and minimized losses during bear markets. By contrast, Marathon lost more than half its value in the 2008 commodity bust.

Marathon is making some big strategic moves to shore up its status in the industry. On one hand, it paid $3.5 billion late last year to buy into the Eagle Ford shale play, joining Chesapeake Energy (NYSE: CHK) and smaller player Rosetta Resources (Nasdaq: ROSE) in the area. At the same time, the company recently completed its spinoff of its refining operations into Marathon Petroleum (NYSE: MPC). That will help refocus the continuing business on exploration and production.

With these changes, Marathon is making a major transition. That's not necessarily the sort of thing that retirees and other conservative investors want to buy into. The more prudent approach would be to see how things shake out after this time of change before committing your money to Marathon.

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.

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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 Chesapeake Energy and Chevron. 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.