Seeking Alpha
Dividend investing, portfolio strategy, CFA, research analyst
Profile| Send Message|
( followers)  

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.

The "kicking the can down the road" nonsense in Washington will likely continue to add uncertainty to the market for years to come. The current Fed-induced rally has expanded P/E multiples across the board and the markets continue to be priced for perfection. 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 recently scanned our entire dividend stock universe and came up with our current "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 > 75

We have highlighted each of these stocks over the course of a 4-part series. Below is a schedule of the entire series.

The All-Defensive Team: First Team

Our 20 All-Defensive Team stocks have an average beta of 0.44 and an average dividend yield of 3.6%. 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 Altria Group (NYSE:MO)

The long-term dividend chart above doesn't do MO justice as the company did a major spin-off (Kraft) in 2007 (which distorted the payout history). That said, MO has been a tremendous dividend growth stock and it probably has one of the longest dividend track records of any stock in existence. MO is a cash flow machine and it has delivered shareholders a total return of 166% over the past 5 years. MO also has one of the highest dividend yields (5.1%) of any stock on our All-Defensive Team!

#4 Kimberly-Clark (NYSE:KMB)

KMB has a nice current dividend yield (3.0%) and a very respectable 5- and 10-year dividend growth rate of 6.9% and 9.2%, respectively. KMB has also performed well over the past 12 months, with a total return around 35%.

#3 UGI Corp (NYSE:UGI)

UGI is the sole General Partner and owns 26% of AmeriGas Partners (NYSE:APU), the nation's largest retail propane distributor. UGI has paid common dividends for 128 consecutive years and raised its dividend in each of the last 25 years (including a 6.9% compound annual growth rate over the past 10 years).

#2 General Mills (NYSE:GIS)

GIS has very high ratings for Risk/Reward Profile (86), Dividend Track Record (92) and Financial Stability (78). GIS has delivered shareholders a 76% 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, GIS has one of the lowest betas (0.21) of the group, with a very respectable dividend yield of 3.0%.

#1 McDonalds Corp (NYSE:MCD)

MCD carries a very high rating for Dividend Track Record (96) 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 95%, with a very conservative maximum drawdown of 21%. Even more impressive is the fact that MCD has increased its dividend at a compound annual rate of 29% over the past 10 years! MCD is probably one of the best dividend growth stocks of all time.

Summary

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.

Source: The All-Defensive Team (Part 4): 20 Stable Dividend Stocks For Your Retirement Portfolio