The U.S. economy continues to have significant headwinds (e.g., high unemployment, talks of QE3, European contagion, weak housing market, high debt levels, etc.) and signs are definitely pointing toward a pullback in the equity market.
Our central belief is that in a low interest-rate world, retirees are experiencing dwindling incomes from their risk-free assets (e.g. government bonds and cash equivalents). With ultra easy monetary policy the Federal Reserve will continue to pick the pockets of savers by keeping rates low and we do not foresee interest rates at the short end of the curve rising any time soon.
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), retirees will 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.
With that in mind, we did a screen with the following parameters to find companies that had high dividend yields, low betas, and P/E ratios under 20:
- Dividend yield > 3%
- Avg. three-month volume > 500,000
- Stock price > $10.00
- Market cap > $1 billion
- Beta < 0.50
The stocks below meet the parameters above. Use this data as a starting point for your own analysis.
While this is not an exhaustive list of low beta dividend stocks, this sample portfolio would yield 7.5% with an average beta of 0.31.
Due to the current market rally (which we believe will be short lived), investors should consider waiting for a pullback in these stocks to enter a new position or to add to an existing position.
Most of the stocks above are currently in a positive uptrend. As such, investors should be looking for near-term areas of support as potential entry points. Below are a couple of examples:
Abbott (ABT) should get some decent support in the $54.00 range. As shown in the chart above, the upward trend line, the 50-day moving average ($54.36) and support from the recent November low all converge in that area (see green box). Additional support will likely be found at the 200-day moving average ($51.71). We think that $52.00-$54.00 would be a great near-term entry point for ABT.
Altria (MO) has been trading in an upward range the past few months and we believe that this trend will continue for the stock as investors continue to seek good risk-adjusted yield in a low interest rate environment. That said, the stock should get downward support around the 50-day moving average ($28.01), and we think that investors should consider buying MO on any dips.
Kinder Morgan Energy Partners (KMP) has been in a very strong uptrend since breaking out in mid-October. While we think that this up trend will continue, the stock is technically overbought right now. That said, we would be a buyer on any meaningful pullback. The 50-day moving average ($78.51) should provide near-term support and we think that the $78.00-$80.00 range would be a good entry point in the stock.