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: First 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 First Team (stocks ranked #1-5). The tables below summarize some of the key data points that we analyze when ranking our dividend stocks.
#5 UGI Corporation (UGI)
UGI is the sole General Partner and owns 26% of AmeriGas Partners (APU), the nation's largest retail propane distributor. The company has paid common dividends for 128 consecutive years and raised its dividend in each of the last 25 years (including a 7.0% compound annual growth rate over the past 10 years).
#4 Kimberly Clark Corp (KMB)
Kimberly-Clark has a nice current dividend yield (3.3%) and a very respectable 5- and 10-year dividend growth rate of 7.0% and 9.5%, respectively. The stock has also been on fire the past 12 months, with a total return over 30%.
#3 Plains All American Pipeline (PAA)
Plains All American has increased its quarterly distribution to limited partners in 33 out of the past 35 quarters and consecutively in each of the past 14 quarters. We challenge you to find another company with that kind of quarterly dividend growth. Master Limited Partnerships ("MLPs") are not traditionally considered to be "defensive" in nature. However, we believe that the large cap diversified MLPs (like PAA) are very "utility-like" in that they tend to deliver stable and consistent income in any market environment. PAA has a very nice dividend yield (4.1%) and the company has delivered shareholders a 208% total return over the past 5 years!
#2 General Mills, Inc. (GIS)
General Mills has very high ratings for Risk/Reward Profile (93), Dividend Track Record (91) and Financial Stability (84). GIS has delivered shareholders an 88% total return over the past five years, and it has increased its dividend at a compound annual rate of 11% over that period. In addition, the stock has the lowest beta (0.16) of the group, with a very nice dividend yield north of 3.0%.
#1 McDonald's Corp. (MCD)
Technically, McDonald's is not in a "defensive" sector, but the company carries one of our highest possible ratings for Dividend Track Record (98) and we believe that it is a great long-term stock for a DIY Dividend Portfolio. MCD has produced a very respectable 5-year total return of 97%, with a very conservative maximum drawdown of 21%. Even more impressive is the fact that the company has increased its dividend at a compound annual rate of 28% over the past 10 years! MCD is probably one of the best dividend growth stocks of all time.
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. We believe that any of the 20 stocks on our All-Defensive Team would make a nice addition to a retirement portfolio.
Disclosure: I am long MCD.