If you are currently retired or getting close to retirement age, building a portfolio that generates stable income is probably your primary focus right now. That said, it's extremely important for retirees to stick to an investment plan that balances risk and reward.
High debt levels, stagnant employment, and the slow housing recovery are still very much a reality. In addition, interest rates are expected to remain near zero for the foreseeable future and income investors will have to continue to scramble for safe yield.
In the current market environment, it is important for retirees to choose their dividend stocks wisely as they are putting new money to work. As volatility increases (especially downside volatility), investors may want to add some low beta stocks to their holdings to help dampen portfolio volatility. In general, companies with low betas will tend to be less volatile than the general market.
Low Beta Dividend Stocks For Your Retirement Portfolio
Stocks in "defensive" sectors (like consumer staples, healthcare, and utilities) typically have low relative betas since these companies tend to generate stable cash flow regardless of the state of the overall economy.
That said, we scanned our entire dividend stock universe and came up with our "All-Defensive" Team. This team is made up of 20 "defensive" dividend stocks with the highest Parsimony Ratings (that also meet the parameters below):
- Stock Price > $10.00
- 3-Month Avg. Volume > 250,000 shares
- Beta (5-year) < 0.60
- Dividend Yield > 2.5%
- Parsimony Rating > 80
We will highlight each of these stocks over the course of a 4-part series. Below is a schedule of the entire series.
- Part 1: Honorable Mention (stocks #16-20)
- Part 2: Third Team (stocks #11-15)
- Part 3: Second Team (stocks #6-10)
- Part 4: First Team (stocks #1-5)
The All-Defensive Team: Third Team
Our 20 All-Defensive Team stocks have an average beta of 0.42 and an average dividend yield of 3.4%. This article highlights the 5 stocks that made the Third Team (stocks ranked #11-15). The tables below summarize some of the key data points that we analyze when ranking our dividend stocks.
#15 H.J. Heinz Company (HNZ)
Heinz increased its dividend by 7.3% for 2013, marking its 9th consecutive year of dividend increases. Over this period, the company has increased its dividend at a compound annual rate of 7.4%. Heinz certainly isn't a growth stock, but the company delivers steady earnings and cash flow every year (even in an economic downturn). We still use ketchup during a recession, right?
#14 Procter & Gamble (PG)
Procter & Gamble has a very high rating for Dividend Track Record (95) as the company has increased its dividend at a compound annual rate of 10.9% over the past 10 years. P&G has been paying a dividend for 122 consecutive years since its incorporation in 1890 and has increased its dividend for 56 consecutive years. The company has average ratings for Financial Stability (66) and Dividend Sustainability (47) due to its flat growth profile and its rising payout ratio. However, we think that P&G is a very stable long-term dividend stock.
#13 The Coca-Cola Company (KO)
The Coca-Cola Company has paid a quarterly dividend since 1920 and has increased dividends in each of the last 50 years. Over the past 5 years, the company has steadily grown its revenues and earnings at a compound annual rate of 11.6% and 10.4%, respectively. This has led to a stable dividend growth rate of 8.5% and a total stock return of 52% over that same period.
#12 Owens & Minor (OMI)
Owens & Minor may not be on your radar, but it should be. As shown in the graph above, the company has consistently increased its dividend at a compound annual rate of 15.7% over the past 10 years. This kind of chart is exactly what you want to see from your dividend stock. In addition, OMI has a strong rating for Financial Stability (85) and we expect this dividend trend to continue.
#11 Wisconsin Energy (WEC)
Wisconsin Energy has delivered shareholders a 103% total return over the past five years, and it has increased its dividend at a compound annual rate of 18.8% over that period. In addition, the company still has a very modest payout ratio of 47.5%, so it has plenty of room to continue to increase its dividend in the future. In fact, the company recently announced that it is planning to raise its quarterly dividend to $0.34 a share in the first quarter of 2013, which would represent a 13.3% increase over the current quarterly rate.
If you are looking to generate safe and stable income in a volatile market environment, low beta dividend stocks in defensive sectors are a great way to accomplish this goal.
Please make sure to "follow" us as we continue this series and unveil the dividend stocks that made our first and second "All-Defensive" Teams.