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 JPMorgan Chase (NYSE: JPM) 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 JPMorgan Chase.


What We Want to See


Pass or Fail?

Size Market cap > $10 billion $134.0 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 2 years Fail
Stock stability Beta < 0.9 1.15 Fail
  Worst loss in past five years no greater than 20% (25.1%) Fail
Valuation Normalized P/E < 18 6.47 Pass
Dividends Current yield > 2% 2.7% Pass
  5-year dividend growth > 10% (15.1%) Fail
  Streak of dividend increases >= 10 years 1 year Fail
  Payout ratio < 75% 13.5% Pass
  Total score   5 out of 10

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

JPMorgan Chase's five-point score shows that the stock doesn't offer conservative investors everything they'd like to see. Share price volatility, dividend cuts, and haphazard growth all count against the Wall Street bank, but it's hard to argue with its rock-bottom valuation.

Three years ago, the viability of the entire banking industry was in doubt. After a huge wave of consolidation that saw JPMorgan Chase pick up Bear Stearns and assets from Washington Mutual, Wells Fargo (NYSE: WFC) buy Wachovia, and Bank of America (NYSE: BAC) buy Countrywide and Merrill Lynch, the sector calmed down somewhat.

But recently, new problems have emerged. Fears about everything from European sovereign debt to a stubbornly sluggish economy in the U.S. have pushed down valuations on many banks, from Wall Street colossus Citigroup (NYSE: C) to tiny Republic Bancorp (Nasdaq: RBCAA), to extremely low levels.

Financial stocks are far from safe bets right now. What makes JPMorgan stand out, though, is its big dividend hike from $0.05 to $0.25 quarterly per share earlier this year -- a move that no other bank has matched in magnitude. Moreover, with straight-shooter CEO Jamie Dimon at the helm, you get information you need -- such as a precise estimate on the bank's exposure to Europe.

Despite facing regulatory pressure on bank and credit card fees, JPMorgan is still bringing in strong profits. Even for retirees and other conservative investors, the stock's price is so low that you should consider JPMorgan for a retirement portfolio.

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.