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.

Everyone's familiar with the Big Oil names that dominate the headlines. With high oil prices, plenty of big oil companies have raked in the profits. But even though smaller companies like Murphy Oil (NYS: MUR) often escape the notice of most people, they sometimes offer untapped opportunities for intrepid investors. Is Murphy Oil poised to deliver a gusher to its shareholders? Below, we'll look at how the company 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 Murphy Oil.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $10.5 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 1.21 Fail
Worst loss in past five years no greater than 20% (47% Fail
Valuation Normalized P/E < 18 9.64 Pass
Dividends Current yield > 2% 2% Pass
5-year dividend growth > 10% 17.7% Pass
Streak of dividend increases >= 10 years 15 years Pass
Payout ratio < 75% 18.3% Pass
Total score 7 out of 10

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

With a score of seven, Murphy Oil actually delivers most of the things that conservative investors like to see in stocks they own. The integrated oil and gas company isn't a household name, but it does have some attractive attributes that could add depth to a retirement portfolio.

Until recently, Murphy was a fully integrated oil and gas player, with both production and refining capacity. But along with peers Marathon Oil (NYS: MRO) and ConocoPhillips (NYS: COP) , Murphy decided that the refining business wasn't where it wanted to focus, so it started trying to sell off its refinery assets last year. Just a few months ago, Murphy succeeded in doing just that, selling refineries to Valero (NYS: VLO) and Calumet Specialty Products (NAS: CLMT) .

Of course, Murphy's stock tends to move along with the broader oil market. That can make the stock quite volatile; shares lost almost half their value from early May to early October before rebounding over the past month. That's quite a bit more than the Energy Select SPDR (NYS: XLE) moved, but it makes sense that a smaller player would be more volatile than the Big Oil stocks.

With its refining operations sold off, Murphy is clearly trying to grow. It has substantial acreage in the Eagle Ford shale play in South Texas, where rivals like Chesapeake Energy (NYS: CHK) have found substantial profit opportunities.

For retirees and other conservative investors, Murphy is an oil name that's off the radar for many energy followers. It's more volatile than some of its larger brethren, but that can work to investors' advantage if they look for dips as buying opportunities. For those with more risk tolerance, Murphy deserves consideration for a place in your 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.

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

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 ."

At the time this article was published Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Chesapeake Energy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

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