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.

In a world where people willingly pay for bottled water even where cheap, plentiful, clean tap water is readily available, it seems like it's only a matter of time before people start paying for air as well. In a sense, Praxair (NYSE:LIN) already profits from the gases that make up Earth's atmosphere, providing basic elements for a variety of commercial and personal uses. How long can the company keep this lucrative business going? Below, we'll revisit how Praxair 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 Praxair.


What We Want to See


Pass or Fail?


Market cap > $10 billion

$32.3 billion



Revenue growth > 0% in at least four of five past years

4 years



Free cash flow growth > 0% in at least four of past five years

3 years


Stock stability

Beta < 0.9




Worst loss in past five years no greater than 20%




Normalized P/E < 18




Current yield > 2%




5-year dividend growth > 10%




Streak of dividend increases >= 10 years

19 years



Payout ratio < 75%




Total score


7 out of 10

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

Since we looked at Praxair last year, the company has picked up a point, with its dividend yield poking up above the 2% level. The stock hasn't risen very far, though, with just over a 5% gain in the past year.

Praxair makes a number of atmospheric and specialty gases, but it also supplies high-performance coatings for industrial use as well. It stands out from its competitors primarily in the areas that it serves. Whereas Airgas (NYSE: ARG) focuses on the U.S. market, Praxair and Air Products & Chemicals (NYSE:APD) both have a more global reach. But Praxair offers specific exposure to the South American market, which has benefited from substantial growth both in emerging market power Brazil as well as in the frontier markets on the continent.

Unfortunately, Praxair has taken on substantial debt, with a debt-to-equity ratio well over 100%. In addition, the company has suffered from the European financial crisis and its impact on markets there, as well as from Brazil's slowdown. A relatively strong dollar has also hurt its results in the short run.

Still, Praxair is finding lucrative business opportunities. Just last month, it signed a 15-year agreement with Honeywell (NYSE:HON) to provide carbon dioxide for Honeywell's food freezing and processing business. Combined with a longtime relationship with BP (NYSE:BP) to provide hydrogen at an Indiana refinery, Praxair has done well in its role facilitating other companies' operations.

For retirees and other conservative investors, Praxair's history of dividend growth is impressive, even if its valuation is somewhat steep. For those willing to pay up for a solid company, though, Praxair is worth further consideration.

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 Praxair to My Watchlist, which will aggregate our Foolish analysis on it and all your other stocks.

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.