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 Goldcorp (NYSE: GG) 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 Goldcorp.


What We Want to See


Pass or Fail?

Size Market cap > $10 billion $38.3 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 0.55 Pass
  Worst loss in past five years no greater than 20% (6.6%) Pass
Valuation Normalized P/E < 18 36.82 Fail
Dividends Current yield > 2% 0.9% Fail
  5-year dividend growth > 10% 11.9% Pass
  Streak of dividend increases >= 10 years 0 years Fail
  Payout ratio < 75% 12.6% Pass
  Total score   6 out of 10

Source: S&P Capital IQ. Total score = number of passes.

With a score of six, Goldcorp has given conservative investors a lot of what they like to see in a stock lately. The gold miner has obviously benefited from the big gains in the yellow metal, but unlike smaller competitors, the company has rewarded shareholders through higher dividends.

For years, gold was an investment that many considered way outside the box. With share prices that tended to move in near-lockstep with bullion prices, miners attracted investors who wanted stocks whose returns weren't correlated with the market.

But with the recent interest in gold, many miners are raising dividends to make their stock more attractive to potential investors. Eldorado Gold (NYSE: EGO) announced plans to target a 2% dividend yield in the near future, more than tripling its current payout. Hecla Mining (NYSE: HL) and Newmont Mining (NYSE: NEM) have pegged their dividend payouts to precious metals prices, which has led to much higher dividends for Newmont and an anticipated initial payout for Hecla later this year. Even with decent dividend growth in the past two years, these moves should push Goldcorp to implement further hikes.

Some challenges during the second quarter, including problems with its joint-venture with Barrick Gold (NYSE: ABX) in the Dominican Republic, forced Goldcorp to reduce its 2011 production estimates by roughly 6%. But with cash costs of just $185 after considering credits for byproduct metals such as copper, zinc, and silver, Goldcorp is in the same league as low-cost leaders like Yamana Gold (NYSE: AUY) in terms of maintaining strong margins.

Retirees and other conservative investors may fear that the recent pullback in gold spells the end of a speculative bubble. But as part of a broader investing strategy, Goldcorp makes a quite reasonable addition to 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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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.