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.

The world moves a whole lot faster than it once did, with the needs of a global economy requiring that goods get from one place to another more quickly than ever. FedEx (NYS: FDX) revolutionized fast shipping decades ago, and it's now a worldwide leader in shipping and logistics. But with the economies of many nations in decline, is FedEx setting up for a rough patch? Below, we'll revisit how FedEx 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 FedEx.

Factor

What We Want to See

Actual

Pass or Fail?

Size

Market cap > $10 billion

$28.3 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

1.24

Fail

 

Worst loss in past five years no greater than 20%

(27.7%)

Fail

Valuation

Normalized P/E < 18

14.19

Pass

Dividends

Current yield > 2%

0.6%

Fail

 

5-year dividend growth > 10%

7.3%

Fail

 

Streak of dividend increases >= 10 years

11 years

Pass

 

Payout ratio < 75%

48.4%

Pass

       
 

Total score

 

5 out of 10

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

Since we looked at FedEx last year, the company has kept its five-point score. The stock has delivered market-matching performance of between 10% and 15% over the past year.

FedEx has taken a once-revolutionary idea and turned it into a global powerhouse. As the No. 1 player in express shipments as well as freight, FedEx stands up to rival UPS (NYS: UPS) and is aiming at trying to capture more of UPS's ground business as well.

But recent slowdowns in the global economy have raised some troublesome concerns. In September, FedEx lowered its full-year forecast well below analyst expectations, with China being a particular source of weakness. Even with major customer Apple (NAS: AAPL) seeing big demand for iPhone 5 and iPad products and Microsoft coming out with releases of its own, FedEx isn't terribly optimistic about its ability to keep revenue moving in the right direction.

The coming holiday season may provide some relief for FedEx. UPS expects another record high volume of shipments between Thanksgiving and Christmas this year, and while FedEx only delivers about half of UPS's volume, it expects faster growth of about 13%.

In a recent investor presentation, FedEx revealed plans to save $1.7 billion in a cost-cutting program over the next three years as well as the possibility of raising dividends further. One big part of FedEx's efficiency gains will come from better use of cloud computing, which could help Oracle (NAS: ORCL) and Amazon (NAS: AMZN) . FedEx also plans to buy more efficient aircraft to save fuel and optimize scheduling to maximize delivery loads.

For retirees and other conservative investors, FedEx's low dividend has always been a less than attractive trait of the stock. If FedEx follows through and boosts its payout more substantially, then at current reasonable valuations, the stock would become a much better candidate for a 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.

FedEx isn't the only company hoping for strength from Apple products. Check out our premium report on Apple to get the full scoop on the long chain of suppliers, shippers, and retailers that increasingly rely on Apple's success. You'll also get insight into whether Apple is a buy after its recent plunge, along with ongoing updates and guidance as key news hits. Claim your copy today by clicking here now.

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

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

Fool contributor Dan Caplinger owns shares of Apple. The Motley Fool owns shares of Apple, Amazon.com, FedEx, Microsoft, and Oracle. Motley Fool newsletter services recommend Apple, Amazon.com, FedEx, Microsoft, and United Parcel Service. 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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