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)
Bristol Myers Squibb Co. (NYSE:BMY)
The biopharmaceutical developer offers a 3.53% yield and a five-year annualized beta of .43. It is important to note that the low beta for this company partially reflects the price impact that new drug approvals can have on the stock. The company currently offers a payout ratio of 155% and a five-year dividend growth rate of 2.46%
Conclusion
The four stocks above are all globally recognized names that operate in non-cyclical businesses. This allows for a low beta and the ability to pay a strong, secure dividend. All of these stocks deserve a closer look if you are concerned about a pullback or are looking for yield in excess of treasuries with less volatility than the broader market.
One last note on beta. While a low beta can protect your portfolio during a pullback, it is also important to remember the opposite also holds true. If the markets continues on its upswing, these low beta names are unlikely to enjoy success of the same magnitude.
The article Four Stocks to Own Regardless of a Pullback originally appeared on Fool.com and is written by John Timmes.
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