The stock market has been on an absolute tear this year, and the bullishness surrounding the market continues to build. However, Bernanke’s comments on Wednesday hit the market hard. If the jitters surrounding higher interest rates continue to spook the markets, a pullback could be coming. As such, we look at three stocks that make good investments even if we head into a pullback in the markets.
Evaluation Criteria
Dividend Yield
One of the major components of any sound buy-and-hold stock portfolio should be dividend yield. A strong dividend suggests financial stability and sufficient cash flow to maintain all business operations. Dividend yield will also ensure that the investor continues to earn income, even if stocks pull back a bit.
Ten-Year Annualized Beta
Beta is a measure of the correlation between an individual stock’s price movement and the movement of the overall stock index. It essentially represents the impact of the overall volatility in the market will have on the individual stock. A beta of less than 1 means a stock will move in the direction of the market, but not to the same extent as the market. A beta above 1 implies that the stock’s movement will be to a greater magnitude than that of them the market.
Stock Parameters
The stocks below all sport a dividend above 3%, a yield greater than the current 30 year treasury and well above the return on a 10 year treasury. They also posses a ten-year annualized beta less that .5. This measure should ensure that if we do see a pullback, sell-in-May event, or other market slowdown, these stocks should hold up better than the broader market index.
The Procter & Gamble Company (NYSE:PG)
Procter & Gamble engages in the sale and manufacturing of a range of branded consumer packaged goods(CPG). The company is a giant in the CPG market and owns such iconic brands as Gillette, Vicks, Crest, Downy, and Pampers. The company sells its products in approximately 180 countries.
Credit: Procter & Gamble Company (NYSE:PG)
Altria Group Inc (NYSE:MO)
Altria Group engages in the manufacture and sale of cigarettes, smokeless products and wine internationally. Altria manufactures well known brands such as Marlboro, Skoal, and Ste. Michelle wine.
Altria Group Inc (NYSE:MO) has a strong dividend yield of 4.7%, a 7.32% increase from a year ago. The ten-year annualized beta is .46. The company also has a history of strong operating cash flows to support the dividend and currently has $2.9 billion of cash on the books.
Kimberly Clark Corp (NYSE:KMB)
Kimberly Clark Corp manufactures and markets personal care, consumer tissue, and health care products worldwide. The company is responsible for such brands as Huggies, Kleenex, and Cottonelle.
Kimberly Clark Corp (NYSE:KMB) has a dividend yield of 3.10% and a healthy five-year average dividend growth rate of 6.91%. The company’s ten-year annualized beta is .40.
Foolish Conclusion
As can be seen, all of these companies are responsible for selling globally recognized brands throughout the world. They sell consumer staples, so economic conditions will have a small impact on their overall business, leading to the low ten-year annualized beta. While The Procter & Gamble Company (NYSE:PG) and Kimberly Clark Corp (NYSE:KMB) operate in competitive businesses, they are global powers that will maintain strong market share. Altria Group Inc (NYSE:MO) operates in a controversial market, but the company has remained a cash cow and continues to flourish financially.
All of three of these companies make great investments should the stock market slowdown. They pay a handsome dividend and should be resilient to a drop in the S&P. It is also important to note that a low beta also means that the stocks are not likely to experience gains in the same magnitude of the overall market should the boom continue.
The article Three Stocks for an Overheated Market originally appeared on Fool.com and is written by John Timmes.
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