As the S&P500 (SPY) hits 3 month highs due to improving economic data and a dearth of bad news out of Europe I think conservative investors should protect their portfolios by rotating into large capitalization U.S. dividend paying equities. Despite near-term strength, 2012 is likely to be a volatile year as the European debt crisis unfolds. Hedge fund managers including Kyle Bass and Ray Dalio remain concerns about the economic environment. Dalio's Bridgewater has indicated that equities are vulnerable to "air pockets."
In an uncertain economic environment, dividend paying, low leverage U.S. large capitalization equities should perform better than the overall market.
- Dividend Yield greater than 2.0% - seeking dividend paying equities that have yields greater than the 10 year U.S. treasury.
- Price to Earnings less than 20.0x - modest equity valuation based on LTM earnings.
- Debt to EBITDA less than 2.0x - modest leverage will give the Company "staying power" during weak economic periods.
- Earnings per share and dividend growth of greater than 5% (CAGR) - seeking Companies with earnings momentum.
- Long-term payout ratios of less than 60% - low payout ratios may allow the Company to expand its dividend.
Equities Appropriate for a Volatile 2012
Johnson & Johnson (JNJ)
- Dividend Yield: 3.5%
- Price to Earnings: 16.1x
- Market Capitalization: $180.3 billion
- Debt to EBITDA: 0.9x
Abbott Laboratories (ABT)
- Dividend Yield: 3.4%
- Price to Earnings: 19.4x
- Market Capitalization: $87.6 billion
- Debt to EBITDA: 1.5x
McDonald's Corporation (MCD)
- Dividend Yield: 2.8%
- Price to Earnings: 19.7x
- Market Capitalization: $102.8 billion
- Debt to EBITDA: 1.3x
Exxon Mobil Corporation (XOM)
- Dividend Yield: 2.2%
- Price to Earnings: 10.3x
- Market Capitalization: 408.7 billion
- Debt to EBITDA: 0.2x
Walgreen Co. (WAG)
- Dividend Yield: 2.5%
- Price to Earnings: 11.3x
- Market Capitalization: $29.3 billion
- Debt to EBITDA: 0.5x