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Summary

  • Fears of a major correction are rising as stocks continue to hover around all-time highs.
  • Stocks with low relative betas tend to generate stable cash flow regardless of the state of the overall economy.
  • The 5 stocks highlighted below have an average beta of 0.40 and an average dividend yield of 3.0%.

While it's been a choppy start to the year, some of the major stock market indices continue to hover around all-time highs. That said, there are mixed signals in the bond market and leaders from the stock market rally last year (Small Cap and Technology stocks) have relinquished their pole position recently. This divergence has fueled the growth of the "correction" bandwagon over the past few weeks and we recommend that investors remain cautious for the remainder of the year.

In the current market environment, it is important for income investors 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 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 25 "defensive" dividend stocks with the highest Parsimony Ratings (that also meet the parameters below):

  • Beta (5-year) < 0.70
  • Dividend Yield > 2.5%
  • Parsimony Rating > 75

This is the last part of a 5-part series that highlighted each of these stocks. Below is a schedule of the entire series (with links to the previous articles). Please make sure to "follow" us so that you will be notified when we publish future articles.

The All-Defensive Team: First Team

Our 25 All-Defensive Team stocks have an average beta of 0.46 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 McDonald's Corp. (NYSE:MCD)

McDonald's 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 103%, 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 23% over the past 10 years! MCD is probably one of the best dividend growth stocks of all time.

#4 Wisconsin Energy Corp. (NYSE:WEC)

Wisconsin Energy has delivered shareholders a 169% total return over the past five years, and it has increased its dividend at a compound annual rate of 21.1% over that period. In addition, the company still has a very modest payout ratio of 56%, so it has plenty of room to continue to increase its dividend in the future.

#3 General Mills (NYSE:GIS)

General Mills has good ratings for Risk/Reward Profile (93), Dividend Track Record (94) and Financial Stability (69). GIS has delivered shareholders a 149% total return over the past five years, and it has increased its dividend at a compound annual rate of 11.7% over that period. In addition, the stock has the lowest beta (0.13) of the group, with a decent dividend yield of 3.0%.

#2 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 7.2% compound annual growth rate over the past 10 years).

#1 Genuine Parts Co. (NYSE:GPC)

Genuine Parts has paid a dividend every year since going public in 1948. Over the past 5 years the company has delivered shareholders a total return of 204% and it has grown its dividend at a compound annual rate of 6.9%. In addition, GPC has a high Financial Stability (89) and Dividend Sustainability (77) ratings. The company has over $100 million of cash on its books and a very low debt-to-EBITDA ratio (0.75x).

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 25 stocks on our All-Defensive Team would make a nice addition to a long-term dividend portfolio.

Disclosure: I am long MCD, GIS, WEC, APU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: The All-Defensive Team: 25 Low Beta Dividend Stocks For An Uncertain Market (Part 5)