At Parsimony Investment Research, we use a combination of fundamental and technical analysis to determine which stocks to buy and when to buy them. For dividend stocks in particular, we have a proprietary rating system that ranks over 700 U.S. dividend stocks on a weekly basis. We scan the charts of our top-rated stocks daily looking for strong levels of support and resistance, which ultimately helps us determine a target "Buy Zone" for each stock. We believe that patiently waiting for a low-risk entry point for a given stock will drastically improve your investment results.
That said, below is a list of our top-rated stocks that are currently in or very close to our target "Buy Zone". Note that our composite rating ranges from 0 (lowest) to 99 (highest).
All of the stocks on the list above have a current dividend yield of at least 2.5% and a 5-year beta under 0.50. Also, all of these stocks have significantly outperformed the S&P 500 over the past 5 years (on a total return basis).
Breaking Down the Parsimony Rating
Our composite rating is derived by ranking each stock based on 28 key fundamental and technical data points in five sub-rating categories:
- Risk-Reward Profile (e.g., current yield, Calmar ratio)
- Financial Stability (e.g., sales and EPS growth, ROE, leverage)
- Dividend History (e.g., historical dividend stability and growth)
- Future Dividend Potential (e.g., payout ratio, EPS estimates)
- Relative Strength (e.g., 12-month total return and trends)
As shown in the table below, a stock with a high composite rating (>95) will typically also have a 90+ rating in at least 2 of the 5 sub-categories.
As discussed above, we believe that patiently waiting for a low-risk entry point for a given stock will drastically improve your investment results. In that spirit, below are our target "Buy Zones" for each of these top-rated dividend stocks.
McDonalds Corp. (MCD) is one of the few stocks that currently holds the coveted "99" composite rating (which is the highest rating in our system) due in part to the company's long and stable dividend history. The stock is down over 12% from the January 2012 peak of $102.22, which is a relatively healthy pullback for MCD based on past corrections. We have been targeting a 10%-15% pullback for the stock and it is currently in the middle of that range.
Despite the uncertainty surrounding the AbbVie spinoff later this year, Abbott Laboratories (ABT) continues to be a must own dividend stock in our mind. The company rates highly in risk-reward, financial stability and dividend history. The stock is in a very strong trend and the 50-day moving average continues to be a strong level of support. The stock consolidated briefly in the $59.00-$61.00 range in March and April and we will be a buyer of ABT if it falls back into this range. If the stock falls below it's 50-day moving average ($60.66), consider it a gift.
ONEOK Partners (OKS) is one of our favorite MLPs. Although you can't see it from the daily chart above, the stock is in a very strong long-term uptrend. The company has delivered shareholders an impressive 5-year total return of over 125% and the stock has a current dividend yield of 4.6%, which is why it has a high risk-reward rating. OKS is down over 10% from its most recent high of $61.58 and we believe that the stock will continue to oscillate around the 50-day moving average before heading higher later this year. Now is a good opportunity to add to your position.
If only every chart looked like Colgate-Palmolive (CL). The stock is in a very strong uptrend and we would welcome the opportunity to add to our position around the 50-day moving average ($97.43). The Company has now increased its dividend for over 35 years in a row and the stock has a current dividend yield of 2.5%, which is well above the going rate for a 10-year Treasury.
Kinder Morgan Energy Partners (KMP) is another one of our favorite MLPs. The company currently pays a juicy dividend yield of 6.2% and we have been patiently waiting for the stock to enter our "Buy Zone" for a few months now. KMP is now down 15% from its recent peak of $90.60, which is the high-end of our target correction range. We believe that this is a low-risk entry point for the stock.