Investors have been exposed to a manic depressive equity market. After a very strong relief rally in the first quarter of 2012, risk markets have sold off since reaching a peak in early April. 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 think investors should continue to rotate out of high beta equities in favor of low beta equities. The market has a number of issues to digest before making a significant move higher. These equities provide investors with a lower beta alternative with strong dividend yields. Investors are being "paid to wait".
Equity Screener
- Market Capitalization of greater than $10 billion
- Dividend Yield of greater than 2.5%
- Beta of less than 1.0x
Screen Rationale
- 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
2007 | 2008 | 2009 | 2010 | LTM Period | |
Abbott Laboratories | $1.30 | $1.44 | $1.60 | $1.76 | $1.88 |
McDonald's | $1.98 | $3.76 | $4.11 | $4.58 | $5.10 |
Wal-Mart Stores | $3.13 | $3.39 | $3.71 | $4.46 | $4.73 |
Kimberly-Clark | $2.12 | $2.32 | $2.40 | $2.64 | $2.76 |
Medtronic | $1.87 | $1.84 | $2.79 | $2.86 | $3.17 |
Annaly Capital | $1.37 | $0.64 | $3.52 | $2.03 | $0.37 |
Source: Company filings.
Abbott Laboratories (ABT)
Market Capitalization: $97.9 billion
Price to Earnings: 19.2x
Dividend Yield: 3.3%
Debt / EBITDA: 1.5x
Beta: 0.31
McDonald's Corp. (MCD)
Market Capitalization: $92.5 billion
Price to Earnings: 17.0x
Dividend Yield: 3.1%
Debt to EBITDA: 1.3x
Beta: 0.42
Wal-Mart Stores Inc. (WMT)
Market Capitalization: $222.0 billion
Price to Earnings: 14.0x
Dividend Yield: 2.4%
Debt to EBITDA: 1.5x
Beta: 0.35
Kimberly-Clark Corporation (KMB)
Market Capitalization: $31.2 billion
Price to Earnings: 18.4x
Dividend Yield: 3.7%
Debt / EBITDA: 1.7x
Beta: 0.32
Medtronic, Inc. (MDT)
Market Capitalization: $38.2 billion
Price to Earnings: 11.5x
Dividend Yield: 2.6%
Debt / EBITDA: 2.0 x
Beta: 0.84
Annaly Capital Management (NLY)
Market Capitalization: $16.2 billion
Price to Book: 1.0x
Dividend Yield: 13.2%
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.
