Investors have been treated to strong equity market returns in the first quarter of 2012. According to the Stock Trader's Almanac, history has indicated that U.S. markets do better in the six-month period from November through April. I'm taking the advantage of the ramp in equities to rotate out of lower quality equities into more defensive, low beta equities which I think will perform better if the markets continue to sell off.
Markets are showing signs of fatigue after weaker economic data as well as somewhat hawkish comments from the Federal Reserve about further needs for quantitative easing.
- Market Capitalization of greater than $10 billion
- Dividend Yield of greater than 2.5%
- Beta of less than 1.0x
- Focused on large capitalization equities as they have scaled and durable business models. Large capitalization equities typically are not concentrated in terms of customers or products, thus reducing company-specific risks.
- Focused on dividends that are higher than the 10 year U.S. Treasury.
- S&P500 (SPY) has a beta of 1.0. Betas less than the market exhibit less volatility than the market.
Diluted Earnings Per Share
Source: Company filings.
Abbott Laboratories (ABT)
- Market Capitalization: $96.8 billion
- Price to Earnings: 20.4x
- Dividend Yield: 3.3%
- Debt / EBITDA: 1.4x
- Beta: 0.31
McDonald's Corp. (MCD)
- Market Capitalization: $100.5 billion
- Price to Earnings: 18.7x
- Dividend Yield: 2.8%
- Debt to EBITDA: 1.3x
- Beta: 0.43
Wal-Mart Stores Inc. (WMT)
- Market Capitalization: $206.5 billion
- Price to Earnings: 13.3x
- Dividend Yield: 2.6%
- Debt to EBITDA: 1.5x
- Beta: 0.35
Kimberly-Clark Corporation (KMB)
- Market Capitalization: $29.2 billion
- Price to Earnings: 18.6x
- Dividend Yield: 4.0%
- Debt / EBITDA: 1.7x
- Beta: 0.32
Medtronic, Inc. (MDT)
- Market Capitalization: $39.7 billion
- Price to Earnings: 12.3x
- Dividend Yield: 2.5%
- Debt / EBITDA: 1.9 x
- Beta: 0.85
Annaly Capital Management (NLY)
- Market Capitalization: $15.1 billion
- Price to Book: 1.0x
- Dividend Yield: 14.1%
- Beta: 0.29
Annaly Capital Management is a mortgage REIT and is typically counter cyclical to the overall equity market. In addition, Annaly provides a significant dividend in a down market.