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.

U.S. banks really hurt millions of safety-conscious investors who relied on their apparently stable business models, only to watch them crash during the financial crisis. But for Australia's Westpac Banking , exposure to an entirely different market gave the down-under banking giant a different risk profile. With rising concerns recently about the health of the Australian economy, however, is Westpac vulnerable? Below, we'll revisit how Westpac Banking 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 Westpac Banking.

Factor

What We Want to See

Actual

Pass or Fail?

Size

Market cap > $10 billion

$83.1 billion

Pass

Consistency

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

5 years

Pass

 

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

2 years

Fail

Stock stability

Beta < 0.9

0.58

Pass

 

Worst loss in past five years no greater than 20%

(48.7%)

Fail

Valuation

Normalized P/E < 18

14.80

Pass

Dividends

Current yield > 2%

6.5%

Pass

 

5-year dividend growth > 10%

4.8%

Fail

 

Streak of dividend increases >= 10 years

3 years

Fail

 

Payout ratio < 75%

67.8%

Pass

       
 

Total score

 

6 out of 10

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

Since we looked at Westpac Banking last year, the company has held onto its six-point score. But the stock has done quite well, jumping more than 30% over the past year.

U.S. investors may not be familiar with Westpac, but the bank is one of the big four banks in Australia. With so much of Australia's economic activity related to natural resources, the slowdown in China that has had a major impact on prices of many different commodities has also hurt the Australian economy. With BHP Billiton recently saying that Australia could see exports drop by a quarter, it and fellow miners Rio Tinto , Fortescue Metals, and others have already made or are likely to implement layoffs.

That in turn could adversely affect credit quality. With interest rates likely to fall as the Australian government tries to stimulate growth, concerns over a potential housing bubble have led to warnings that Westpac and its banking peers need to maintain high credit standards in order to avoid overlending.

One benefit Westpac has that U.S. banks Bank of America and Wells Fargo often didn't have is the ability to pursue borrowers for shortfalls if home values are insufficient to repay outstanding mortgage loans. B of A and Wells, by contrast, were often subject to nonrecourse mortgage laws that limited their collateral to the property itself.

For retirees and other conservative investors, Westpac has an attractive dividend and has been able to grow it in recent years. Even with worries over the Australian economy, Westpac has the ability to add the diversification that so many U.S.-heavy retirement portfolios need, and is therefore worth a look as part of your allocation to global financial stocks.

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. 

If you're worried about Westpac and the prospect for an Australian housing bubble, Wells Fargo's experience in surviving the financial meltdown should reassure you that banks aren't doomed. Wells Fargo's dedication to solid, conservative banking helped it survive the financial meltdown. But is Wells Fargo still a buy today? To learn everything you need to know, I invite you to download our premium research report from one of The Motley Fool's top banking analysts. Click here now for instant access to this in-depth take on Wells Fargo.

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

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

Fool contributor Dan Caplinger owns warrants on Wells Fargo. The Motley Fool owns shares of Bank of America 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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