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.

Telecom stocks have a solid reputation for dependable dividends and stable stock prices. That reputation holds true even when you look internationally at Japan's Nippon Telegraph & Telephone (NYSE: NTT). But with so many companies to choose from around the world, does NT&T stand out as a particularly smart buy? Below, we'll revisit how Nippon Telegraph & Telephone 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 Nippon Telegraph & Telephone.


What We Want to See


Pass or Fail?


Market cap > $10 billion

$55.6 billion



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

2 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

10 years



Payout ratio < 75%




Total score


7 out of 10

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

Since we looked at Nippon Telegraph & Telephone last year, the company has dropped a point, with free cash flow having contracted sharply last year. The stock has also languished, losing about 5% over the past year.

Nippon looks a lot like what AT&T (NYSE:T) would have been if it had never been forced to break up into component parts. Under its corporate umbrella, Nippon has regional communications, long-distance and international services, wireless, and data communications, along with a host of other related business. In other words, rather than engaging in transactions like Verizon (NYSE:VZ) did with Frontier Communications (OTC:FTR) to divest itself of low-growth landline businesses, Nippon has held onto just about every part of its original business, albeit having its mobile-focused NTT DoCoMo trade separately as the largest wireless carrier in Japan.

But just like its U.S. counterparts, Nippon faces competition. Rival SoftBank, which recently announced a huge investment in Sprint Nextel (NYSE:S), was the first Japanese carrier to offer customers the iPhone, and its global ambitions could prove problematic to Nippon in the long run.

Nevertheless, for retirees and other conservative investors, Nippon's rich dividend and solid track record make it look like a good value, especially at its current low valuation. Although its size makes substantial growth more difficult, Nippon has a variety of options it could choose from to make its operations more efficient and squeeze more shareholder value for retirement investors.

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.