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. As part of an ongoing series, I'm looking today at 10 measures to show whether Sprint Nextel makes a great retirement-oriented stock.

Sprint has had a long history of being perceived as the odd player out in the U.S. wireless telecom industry, as its two larger rivals have parceled up much of the most lucrative business over the years. But recent events have thrown the former third-wheel back into the competitive mix. Below, we'll revisit how Sprint 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 Sprint.

Factor

What We Want to See

Actual

Pass or Fail?

Size

Market cap > $10 billion

$18.8 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

1 year

Fail

Stock stability

Beta < 0.9

0.98

Fail

 

Worst loss in past five years no greater than 20%

(86.1%)

Fail

Valuation

Normalized P/E < 18

NM

NM

Dividends

Current yield > 2%

0%

Fail

 

5-year dividend growth > 10%

0%

Fail

 

Streak of dividend increases >= 10 years

NM

NM

 

Payout ratio < 75%

NM

NM

       
 

Total score

 

1 out of 7

Source: S&P Capital IQ. NM = not meaningful; Sprint had negative earnings over the past year and doesn't pay a dividend. Total score = number of passes.

Since we looked at Sprint last year, the company has managed to pull its score up from zero. It did so on the basis of its market cap, which soared along with the stock as the company found a much-needed lifeline. As a result of rising optimism over the telecom's prospects, Sprint shares have more than doubled over the past year.

The big news for Sprint over the past year came last October, when Japanese telecom SoftBank agreed to invest $8 billion in the company and pay existing shareholders an additional $12.1 billion in exchange for taking a 70% stake in the newly recapitalized Sprint. The move to take such a big stake in the No. 3 provider may seem odd, but SoftBank CEO Masayoshi Son believes that rivals AT&T and Verizon have been far too slow in embracing the cold reality that data service is the key driver of success in the market. With separate voice and text service largely giving way to data-driven alternatives, Son thinks Sprint can excel by focusing more on data than Verizon and AT&T have thus far.

One open issue for Sprint, however, is its proposed merger with Clearwire . Sprint and Clearwire agreed to a $2.97 per share buyout bid back in December, but a rival bid from DISH Network for $3.30 per share has thrown the transaction into question. With substantial amounts of spectrum and other valuable assets, Clearwire is an important piece of Sprint's overall strategic puzzle going forward.

Of equal importance is which direction Sprint will go in the smartphone area. The company made a huge commitment to the iPhone a couple years ago in order to get access to the device, but recently, Sprint has started making moves to encourage sales of Android-based smartphones. With subsidies representing a big obstacle to profiting from iPhone sales, Sprint appears poised to look for better margins elsewhere.

For retirees and other conservative investors, Sprint remains far too speculative to include as a core component of a retirement portfolio. Only those willing to take on high levels of risk should consider taking a position in Sprint.

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.

The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report, "3 Stocks That Will Help You Retire Rich," names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

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

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

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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