Stocks were lower this morning as the market digested another weak jobs report. U.S. employers added 18,000 workers in June, the fewest in nine months, and the unemployment rate "unexpectedly" climbed to 9.2%, indicating a struggling labor market.
Despite the pullback today, the S&P 500 is up over 6% over the past two weeks. We feel that this short term rally is more of a technical bounce and is not representative of the underlying fundamentals of the U.S. economy.
The U.S. economy continues to have significant headwinds (e.g., high unemployment, end of QE2 (start of QE3?), weak housing market, high debt levels, etc.) and signs are definitely pointing toward further weakness in the equity market.
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. In addition, investors should focus on stocks in defensive sectors like consumer staples, health care, and utilities (which tend to hold up well in economic downturns).
With that in mind, we did a screen with the following parameters to find defensive companies that had high dividend yields, low betas, and P/E ratios under 20:
- Sectors: Consumer Staples, Health Care, Utilities
- Dividend Yield > 4%
- Avg. 3m Volume > 1,000,000
- Stock Price > $10.00
- Market Cap > $1 billion
- P/E Ratio < 20.0x
- Beta < 1.00
The stocks below meet the parameters above. Use this data as a starting point for your own analysis.
On average, the stocks above yield 5.0% and all of them should hold up very well in an economic downturn.
Since we feel that the market is due for a pullback, we also recommend that investors consider selling covered calls on these stocks to further dampen portfolio volatility (see "Double Your Dividend Yield: A Covered Call Strategy for Income Investors" for details).