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. In this series, I look at 10 measures to show what makes a great retirement-oriented stock.

ExxonMobil (NYSE: XOM) may no longer be the stock with the largest market cap in the market, thanks to the maker of a few well-known iDevices. But the oil giant is still a dominant player in the energy industry, with its fully integrated operations including exploration and production, midstream transportation, and refining and marketing. With such a huge base, though, does ExxonMobil still have any room to grow? Below, we'll revisit how ExxonMobil does on our 10-point scale.

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 ExxonMobil.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $407 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 0.50 Pass
Worst loss in past five years no greater than 20% (13.1%) Pass
Valuation Normalized P/E < 18 9.13 Pass
Dividends Current yield > 2% 2.2% Pass
5-year dividend growth > 10% 7.6% Fail
Streak of dividend increases >= 10 years 29 years Pass
Payout ratio < 75% 22% Pass
Total score 9 out of 10

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

Since we looked at ExxonMobil last year, the company has gotten one point closer to a perfect 10. Conservative investors have to be pleased with Exxon's continuing dividend increases and accelerating free cash flow growth.

With oil prices remaining near triple-digit levels, Exxon has benefited greatly. Although the company's revenue and profit figures aren't quite back up to high levels from before the financial crisis, when oil approached $150 per barrel, they're still showing impressive growth.

But the company still has challenges to overcome. In its most recent quarterly report, the oil giant posted good numbers overall but saw weakness in its refining segment, along with slightly weaker than expected production levels. One quarter isn't that big of a warning sign, but with rivals Statoil (NYSE: STO) and Petrobras (NYSE: PBR) coming up with huge oil finds that could make them far larger global players in the oil market, Exxon can't afford to get complacent with lackluster performance.

Another big problem is the weakness in natural gas. Chesapeake Energy (NYSE: CHK) and ConocoPhillips (NYSE: COP) both announced plans to cut their natural gas production because of prices that are near decade lows. So far, though, Exxon -- which greatly increased its natural gas exposure through its acquisition of XTO Energy -- hasn't followed suit.

For retirees and other conservative investors, nearly three decades of dividend growth is very attractive, even if Exxon's yield doesn't match up well to other oil companies. With valuations at low levels, Exxon looks like a perfectly good stock for most 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.

If you really want to retire rich, no one stock will get the job done. Instead, you need to know how to prepare for your golden years. The Motley Fool's latest special report will give you all the details you need to get a smart investing plan going, plus it reveals three smart stocks for a rich retirement. But don't waste another minute -- click here and read it today.

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