10 Solid Dividend Stocks Worth Considering

The market has been defying gravity this summer, with the S&P500 up 49% since March. But most of the appreciation has been in what I consider lower quality stocks. Many homebuilders with doubtful prospects have doubled from their recent lows, while stocks that are somewhat recession proof like McDonalds (MCD), Walmart (WMT), Coca-Cola (KO) and Procter & Gamble (PG) have bounced a mere 15-20%.

According to Bloomberg, “companies with the worst earnings led the 45 percent gain in the Standard & Poor’s 500 Index since it fell to a 12-year low five months ago”. It might be a good time to sell some of your winners that have done exceptionally well and either wait for a pull-back, or, if you’re trigger happy, buy solid investment-grade companies.

Given the current economic environment, with the US Dollar likely to devalue against foreign currencies and the high probability of inflation, you want to invest in a company with exposure to foreign markets, a stable business model that is non-cyclical and a history of growing dividends. You also want to avoid luxury brands or businesses that sell expensive goods.

Here are a few of the companies that I would consider looking at, along with their dividend yields.

• Verizon Wireless (VZ): 5.87%
• Johnson & Johnson (JNJ): 3.21%
• Procter & Gamble (PG): 3.28%
• Colgate-Palmolive (CL): 2.41%
• Unilever (UL): 4.39%
• Altria Group (MO): 7.10%
• Philip Morris International (PM): 4.61%
• McDonalds (MCD): 3.55%
• Walmart (WMT): 2.51%
• Enerplus Resources Fund (ERF): 9.56%

While I don’t own any of these yet (except ERF), I do own some ETFs that hedge against dollar devaluation and inflation:

• CurrencyShares Australian Dollar Trust (FXA): 2.04%
• Morgan Stanley Emerging Markets Domestic Debt Fund (EDD): 7.45%
• Market Vectors TR Gold Miners (GDX): 1.90%

ETFconnect.com is a great site to find out more information about ETFs. Having some exposure to foreign currency and gold miners isn’t a bad idea. I’ve been worrying about the effects of the Federal Reserve printing money like its going out of style and the CEO of Coeur d’Alene (CDE), a silver mining company that I happen to own, predicts that Silver will jump 29% by the end of the year because of this.

Demand from investors seeking a store of wealth accounts for more than half of silver’s 23 percent price jump this year before today, Wheeler said in an interview in New York. The metal will reach $18 an ounce with supplies little changed and demand buoyed by purchases from exchange-traded funds, he said.

“We have this crushing new debt and dollar weakness,” Wheeler said today. “The outlook for precious metals is very positive, and silver will be No. 1.”

The U.S. government has pledged $12.8 trillion, an amount that approaches U.S. gross domestic product, in a bid to stem the longest recession since the 1930s. The spending will erode the value of the dollar and boost the appeal of silver and gold as alternative assets, Wheeler said.

“There’s a lot of anxiety out there over this debt,” Wheeler said. “Around the world, there are a growing number of investors who want protection. They’re going to want silver as part of their portfolio.”

Given this information, you might want to increase your exposure to silver miners like CDE, SSRI or SLW, although these don’t pay any dividends.

Disclosure: I own ERF, CDE, FXA, GDX, EDD, physical gold and silver.

Comments

[Robert Mart...:]

Nirav,

Thanks for your article.

You wrote: "Given the current economic environment, with the US Dollar likely to devalue against foreign currencies and the high probability of inflation, you want to invest in a company with exposure to foreign markets, a stable business model that is non-cyclical and a history of growing dividends."

I agree, and think that high-yield stocks in stable, global firms can hedge against inflation, based on a time horizon of a year or more. These stocks are a safe way to play the reflation rally, and are a good complent to precious metals, as you noted.

I recently wrote "Inflation Protection: What's Working, What's Not". seekingalpha.com/artic...
I noted that stocks, commodites and precious metals are now trading together because we are in a liquidity bubble. Thus, only TIPS and WIPS are acting as a true inflation hedge lately. Therefore, I must caution investors about using precious metals and dividend stocks to hedge against inflation (at least in the short run).

Finally, I'll note that investors might want to hedge a dollar decline directly, using a dollar bearish index such as UDN, as opposed to emerging market bonds, precious metals, or Australian currency.

I don't LIKE betting against the U.S. dollar, since it seems unpatriotic. But cheap money from the Fed and gargantuan fiscal deficits make inflation a probability within the next 18 months.

Thanks again for the article.
Rob

Aug 24 03:04 PM

[Investor Nirav:]

Hi rob

Aug 24 09:51 PM

[Investor Nirav:]

Hi Rob,

Thanks for commenting.

You are quite right. All asset classes have been correlated to the downside. I talked about this on my blog (livingoffdividends.com.../).

While UDN is a good idea, the one issue with inverse ETFs is that sometimes they aren't perfectly correlated and you might not make as much money as if you had been long the same basket of currencies. I'd be interested to see how it compares to the basket over the long term - might be a good pair-trade!

Aug 24 10:00 PM

[prairiedog555:]

When you look at the chart of UUP vs FXA you will see that the relationship is inverse, even though UUP will replicate the performance of being long the US Dollar against the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.
Plus FXA pays a 4% div.

Aug 25 06:01 AM