As the chatter surrounding a market pullback continues to build, these companies remain good investments. We look at fours stocks in four different sectors that meet the below criteria.
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 a company is financially solid and generating sufficient cash flow to maintain all business operations. Dividend yield will also ensure that the investor continues to earn income, even when a stock is held at a loss.
Five-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 five-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.
McDonald’s Corporation (NYSE:MCD)
With a five-year annualized beta of .40 and a dividend yield of 3.05%, the Big Mac king fits nicely into our investment criteria. As of Dec. 31, 2012, McDonald’s operated 34,480 restaurants in 119 countries. The company’s giant global footprint, general affordability, industry supremacy, and brand awareness all contribute to its low beta. McDonald’s Corporation (NYSE:MCD)’s payout ratio stands at 54.04%. This suggests that the dividend yield is easily sustainable and there is potential for dividend increases in the future. In fact, the five-year dividend growth rate for the company is 15.48%
General Mills, Inc. (NYSE:GIS)
The company behind global brands like Cheerios, Wheaties, and Pillsbury has a current dividend yield of 3.04% and a five-year annualized beta of .18. Even within the consumer staples sector, General Mills, Inc. (NYSE:GIS) offers an extremely low beta. The company’s payout ratio is 46.42%, so the dividend is secure and there is the potential for further dividend increases. The five-year dividend growth rate is a healthy 13.7%.
The cell phone carrier and broadband provider offers a 3.88% yield with a five-year annualized beta of .44. The company’s contract-based business model will ensure steady cash flow generation and a secure dividend yield. The company’s current payout ratio is 507%. While this number seems astronomical, the industry average is nearly 200% and represents the large debt load that these companies can take on and pay out in dividends. The five-year dividend growth rate is 3.67%.
Credit: Verizon Communications Inc. (NYSE:VZ)
