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Famous value investor Benjamin Graham always recommended investing with a margin of safety and discussed this concept in his "Intelligent Investor" in detail. We believe it is best for investors to be cautious of the upcoming inflationary environment and protect themselves by following Benjamin Graham’s recommendations. High dividend yield is one of the important criteria in defensive investing, however some stocks with relatively lower dividend yields may still offer the desired margin of safety. These stocks’ characteristics generally comply with Benjamin Graham’s rules, but their dividend yields remained low due to larger increases in their stock prices in the last few years.

Below, we compiled a list of 13 large-cap defensive stocks that may provide a margin of safety to investors. The market data are sourced from Fidelity. All companies in this list have annualized dividend yields between 2% and 3%. These stocks also have market capitalizations above $20 billion, current P/E Ratios lower than 20 and maximum total debt/equity ratios of 50%.

Dividend Yield

P/E Ratio

T.Debt / Equity

52-Week Return

Automatic Data Processing

ADP

2.93%

19.58

0.62%

21.10%

Lowe's Companies Inc.

LOW

2.92%

13.46

39.45%

-9.78%

3M Co.

MMM

2.88%

13.43

32.31%

-9.58%

Freeport-McMoran

FCX

2.81%

6.57

24.41%

-12.79%

Exxon Mobil Corp.

XOM

2.61%

9.73

10.60%

19.77%

United Technologies

UTX

2.56%

14.70

50.00%

8.51%

Texas Instruments Inc.

TXN

2.53%

10.59

32.08%

5.87%

Microsoft Corp.

MSFT

2.46%

10.03

20.88%

5.95%

Occidental Petroleum

OXY

2.41%

11.69

12.08%

1.09%

ACE Ltd.

ACE

2.32%

8.52

21.02%

4.86%

Johnson Controls Inc.

JCI

2.29%

13.13

45.56%

-3.92%

Union Pacific Corp.

UNP

2.29%

14.73

48.83%

4.15%

Tyco International Ltd.

TYC

2.27%

15.12

29.53%

14.63%

AVERAGE

3.84%


In the last 52-week period, the average return of these 13 large-cap US stocks was 3.84%. Only four stocks in this group had a loss in the past 12 months, whereas two stocks – ADP and XOM – provided double digit returns in the same period.

Here are the top 10, highest dividend yielding, US stocks on our list:

Automatic Data Processing Inc. (NASDAQ:ADP) is one of the leading providers of integrated computing services in the world. ADP has a 2.93% dividend yield and returned 21.10% during the past 12 months. The stock has a market cap of $24.84B and P/E Ratio of 19.58. Jean-Marie Eveillard’s First Eagle invested more than $150 Million in ADP.

Lowe’s Companies Inc. (NYSE:LOW) is a large home improvement store chain operating primarily in the United States, Canada, and Mexico. LOW has a 2.92% dividend yield but lost -9.78% during the past 12 months. The stock has a market cap of $25.11B and P/E Ratio of 13.46. Both Jason Capello and Jonathan Jacobson hold more than $200 million of LOW.

3M Co. (NYSE:MMM) is a large American conglomerate providing a wide range of diversified technology products worldwide. MMM has a 2.88% dividend yield but lost -9.58% during the past 12 months. The stock has a market cap of $56.20B and P/E Ratio of 13.43. Jean-Marie Eveillard had more than $600 Million in MMM at the end of June 2011.

Freeport-McMoran Copper & Gold (NYSE:FCX) is a large American producer of copper and gold. FCX has a 2.81% dividend yield but lost -12.79% during the past 12 months. The stock has a market cap of $36.54B and P/E Ratio of 6.57.

Exxon Mobil Corp. (NYSE:XOM) is a giant U.S. company that manufactures and sells branded motor fuels and related products worldwide. XOM has a 2.61% dividend yield and gained 19.77% during the past 12 months. The stock has a market cap of $359.85B and P/E Ratio of 9.73. Phill Gross and Ken Fisher are large XOM holders with nearly $600 million worth of positions (see Ken Fisher’s top stock picks).

United Technologies Corp. (NYSE:UTX) is a large US conglomerate providing aerospace technology products and related services worldwide. UTX has a 2.56% dividend yield and returned 8.51% during the past 12 months. The stock has a market cap of $69.07B and P/E Ratio of 14.70. Ken Fisher had more than $500 Million in UTX at the end of June 2011.

Texas Instruments Inc. (NASDAQ:TXN) is one of the leading manufacturers of semiconductors in the world. TXN has a 2.53% dividend yield and returned 5.87% during the past 12 months. The stock has a market cap of $31.82B and P/E Ratio of 10.59. Bill Miller has the largest TXN position among the 300-plus funds we are tracking (check out Bill Miller’s stock picks).

Microsoft Corp. (NASDAQ:MSFT) is the largest provider of software products in the world. MSFT has a 2.46% dividend yield and returned 5.95% during the past 12 months. The stock has a market cap of $226.05B and P/E Ratio of 10.03. Ken Fisher, Boykin Curry and David Einhorn are the most prominent MSFT investors. This year at the Ira Sohn Investment Conference Einhorn gave a lengthy speech and explained why he is bullish about Microsoft (read his entire speech here).

Occidental Petroleum Corp. (NYSE:OXY) is an international oil and gas exploration and production company. OXY has a 2.41% dividend yield and returned 1.09% during the past 12 months. The stock has a market cap of $65.66B and P/E Ratio of 11.69. Ralph Whitworth and Ken Fisher both invested over $500 million in OXY.

ACE Ltd. (NYSE:ACE) is a global insurance and reinsurance organization. ACE has a 2.32% dividend yield and returned 4.86% during the past 12 months. The stock has a market cap of $21.37B and P/E Ratio of 8.52. Eric Mindich invested $132 million in ACE stocks.


Disclosure: I am long MSFT.

Source: 13 Solid Dividend Stocks For Defensive Investors