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.

As a super-regional bank, US Bancorp (NYS: USB) has been in just about the perfect position over the past several years. It's small enough to avoid the stigma of being a too-big-to-fail bank, but it's big enough to benefit from the economies of scale that the banking industry provides its largest players. But can US Bancorp keep walking that fine line? Below, we'll revisit how US Bancorp 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 US Bancorp.

Factor

What We Want to See

Actual

Pass or Fail?

Size

Market cap > $10 billion

$63.2 billion

Pass

Consistency

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

3 years

Fail

 

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

4 years

Pass

Stock stability

Beta < 0.9

1.00

Fail

 

Worst loss in past five years no greater than 20%

(16.6%)

Pass

Valuation

Normalized P/E < 18

13.01

Pass

Dividends

Current yield > 2%

2.3%

Pass

 

5-year dividend growth > 10%

(15%)

Fail

 

Streak of dividend increases >= 10 years

2 years

Fail

 

Payout ratio < 75%

29.9%

Pass

       
 

Total score

 

6 out of 10

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

Since we looked at US Bancorp last year, the company has kept its six-point score. The stock has done even better, though, with share prices rising almost 30% over the past year.

US Bancorp has done an excellent job of staying on top of its game. While many big banks plunged during the financial crisis, US Bancorp held up reasonably well, limiting its losses and quickly recovering from them. Unlike nearly every larger U.S. bank, US Bancorp now trades at its pre-crisis levels. And unlike Citigroup (NYS: C) , which has been stuck with a $0.01 per share dividend since it accepting bailout funds during the crisis, US Bancorp has raised its dividend not once but twice in the past two years.

Looking ahead, the blooming housing recovery is finally starting to take shape for US Bancorp and its peers. In its most recent quarter, US Bancorp more than doubled its mortgage banking revenue, following in the footsteps of Wells Fargo (NYS: WFC) , JPMorgan Chase (NYS: JPM) , and Bank of America (NYS: BAC) all posting strong contributions from their mortgage businesses.

One key to US Bancorp's success has been simple: staying boring. Its emphasis on traditional banking served it well during the crisis, and CEO Richard Davis has been able to take advantage of the industry environment to make smart strategic takeovers and build out its footprint as far as it wants.

For retirees and other conservative investors, US Bancorp shows exactly the kind of strategy that makes a promising retirement investment. If you want a financial stock in your retirement portfolio, you could do far worse than adding US Bancorp to your stock watchlist.

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.

US Bancorp has done a remarkable job keeping its business intact during the financial crisis. Bank of America has had to work harder. But many believe that its struggles make Bank of America a better buy from an investing standpoint. Are they right? Get the scoop in our premium report on the bank, which details Bank of America's prospects, including three reasons to buy and three reasons to sell. Just click here to get access.

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

The article Will US Bancorp Help You Retire Rich? originally appeared on Fool.com.

Fool contributor Dan Caplinger owns warrants on JPMorgan Chase and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Motley Fool newsletter services recommend Wells Fargo. Try any of our Foolish newsletter services free for 30 days. 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 Motley Fool has a disclosure policy.

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