Having a significant market downturn like the one we just encountered last week can scare many investors into taking a second look at their portfolios. One thing that might be of interest is how many stocks carry dividends to help buffer any of these losses in valuation. Stocks paying out dividends not only "pay to play" but offer the protection of investing in a well established firm that is far from speculative at the same time. Carrying some solid equities with dividends can balance even the riskiest of portfolios with mostly biotechs going long.
Several industries are full of stocks carrying nice dividends, but the real difficulty lies in finding the selections that have prospects for growth as well as the shock absorbing dividend payments. If this were an easy task, we would all be buying France Telecom (FTE) with a valuation just off a 5-year low and dividend yield currently at 15.5%.
There are many telecom stocks that are paying out healthy dividends, but the competitive industry and disappointing earnings are chasing away investors. Century Link (CTL), Windstream (WIN) and Frontier Communications (FTR) are some of the prominent players with high-yield dividend payments of 8.5% (currently), 11.8% and 9.7% respectively. The dividend payout ratios of Windstream and Frontier were both over 140% in 2012, which are not going to be easy to sustain. All three companies have growth that has screeched to a halt and have shares that have plummeted since Century Link announced a dividend cut. Despite this, Century Link appears to be in the best position to weather a storm and keep your investment safe.
Consider that Century Link did the right thing by cutting the dividend and has already experienced the fallout of having the stock dive from 41.69 to 32.27 a share on February 14. It has now recovered to 34.89 a share and still has a dividend yield of just over 6%. All things considered, any dividend correction to Windstream or Frontier will only push their valuations down further. In comparison, Century Link is in a better position to stand up to further negative news and bounce back given any downturn, making it a less risky proposition.
As Apple (AAPL) continues to experience a slip in confidence an opening has developed for companies like Intel (INTC) and Microsoft (MSFT) to make up for lost ground. Intel has a dividend yield currently over 4% (4.3%), while Microsoft is just above 3% (3.3%). Both companies have solid foundations and EPS figures around 2 and Intel has a P/E ratio just under 10, while Microsoft comes in just above 15. They are both strong companies with solid fundamentals but Intel has a little more potential given the little extra dividend yield and valuation.
Despite a sluggish marketplace, Intel has just branched out to become a foundry for Altera's (ALTR) new semiconductors and will realize a margin of over 50% for being this outsourcing recipient. Factor in Intel's solid P/E ratio, EPS and strong cash position and it starts to add up. Intel is also pretty close to a 52-week low and has more room to rise and even if it remains close to where it is now the dividend yield is still a full percent higher than Microsoft. Both are pretty strong candidates, but if Intel falls closer to $20 a share, it might warrant stronger consideration.
The utilities sector is crowded with many performers and healthy dividends to warrant further investor interest. Sempra Energy (SRE), Southern Company (SO) and Duke Energy (DUK) are some of the major players that all have strong valuations and solid dividend payments. Most utilities are regional operators that also offer protection from further global turmoil, which can be an added plus. PG&E (PCG), operating out of northern and central California, is an example of such a regional utility worth taking into consideration.
Although PG&E just experienced a dreadful close out quarter to 2012 with a slender profit margin and even a small net loss, the company has experienced solid revenue growth and has maintained a nice dividend yield, currently at 4.2%. Four analysts rate PG&E a strong buy, two a buy and 11 a hold, which is not bad in this peer group. PG&E recently announced a public stock offerning of 7.2 million shares at a price of $41.71 a share and is currently priced at $42.85 a share with plenty of room to move higher. Given the value, consistent revenue and solid dividend, PG&E might be a good stock to watch. Any downturn close to $40 a share might eliminate much of the risk and be all the impetus required for making a move.
Many of these stocks mentioned are conservative in nature and are primarily slow-moving investments with the potential to act as safe havens with dividend payments where investors can ride out a storm. The bears are making much of the noise lately and these stocks can be strong considerations to keep money in play during adverse market movements. When the market makes sideways or downward movements and your stomach has endured enough pain, it might be worth taking a look at some of these more stable plays. All investments carry risk but with solid dividend yields, revenues and room for growth many of these stocks can enable more sleep at night. Whether taking on a little more risk with Century Link, a tough marketplace with Intel or less dividend with PG&E, these companies are going to be here tomorrow while beating most conservative bond yields at the same time.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.