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 Philip Morris International (NYSE: PM) 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 Philip Morris International.


What We Want to See


Pass or Fail?

Size Market cap > $10 billion $123 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 0.84 Pass
  Worst loss in past five years no greater than 20% (9.1%)* Pass
Valuation Normalized P/E < 18 18.85 Fail
Dividends Current yield > 2% 3.7% Pass
  5-year dividend growth > 10% 11.6%* Pass
  Streak of dividend increases >= 10 years 3 years Fail
  Payout ratio < 75% 60% Pass
  Total score   8 out of 10

Source: Capital IQ, a division of Standard and Poor's. *Over three years since 2008 spinoff. Total score = number of passes.

With a score of 8, Philip Morris International has a great combination of growth and dividend income that conservative investors love to see. The tobacco giant has the world at its fingers and isn't missing the big opportunity it has.

In 2008, Altria (NYSE: MO) spun off its international operations into Philip Morris International. By doing so, it pulled off a big coup: it fenced off its U.S. litigation risk within the new boundaries of the much smaller Altria, freeing its international unit to pursue global expansion without the potential for a big U.S.-based lawsuit leading to a devastating verdict against the entire company.

As a result, Philip Morris International faces far less stringent regulation in its emerging markets than Altria and U.S. peers Reynolds American (NYSE: RAI) and Lorillard (NYSE: LO). Yet it has the strong stable of Philip Morris brands, including Marlboro, to promote around the world.

Philip Morris International doesn't have completely clear sailing, as foreign competition from British American Tobacco (AMEX: BTI) and others still exists. But with seven of the world's 15 top brands, Philip Morris International has a big lead.

With a good dividend yield and strong growth prospects, the only things keeping Philip Morris International from a perfect score are investors bidding up the shares and a too-short history as an independent entity to reach a 10-year dividend streak. Retirees and other conservative investors would be well advised to find a place for Philip Morris International in their retirement portfolios.

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 Philip Morris International 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. The Motley Fool owns shares of Philip Morris International and Altria Group. Motley Fool newsletter services have recommended buying shares of Philip Morris International and writing puts on Lorillard. 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.