These Low-Beta Dividend Aristocrats Could Offer Investors Safer Equity Exposure And Income (Part 2)

Includes: ADM, CL, MCD, MKC, PG
by: Zvi Bar

<< Return to Part 1

The recent market has been exceptionally volatile, with a strong downward trend. Low-beta dividend paying stocks may offer income investors a more stable supplement to their fixed income portfolios, especially if this heightened asset volatility is a concern.

Companies with low betas tend to be less volatile than the general market, and also are often less correlated to general market gyrations that are not related to the company's actual business. Several low-beta stocks now offer yields that are competitive with highly rated bonds. These could be seen as compelling supplements or alternatives for income portfolios.

This is a recent performance review for five well-known S&P 500 components that have a beta of below 0.5, dividends of at least 2 percent and are dividend aristocrats, meaning that they have increased their dividends every year for at least the last 25 consecutive years. Each of these companies is also fairy well known. In part 1, I listed five such companies, each with a beta of 0.38 or lower. These, below, have a beta of between 0.42 and 0.5.

McDonald's Corp (NYSE:MCD)

Beta: 0.42

Yield: 3.2%

Year To Date: -13.80

(click charts to enlarge)

McCormick & Co. (NYSE:MKC)

Beta: 0.44

Yield: 2.2%

YTD: 9.14%

Colgate-Palmolive Co (NYSE:CL)

Beta: 0.44

Yield: 2.6%

YTD: 4.91%

Procter & Gamble (NYSE:PG)

Beta: 0.45

Yield: 3.7%

YTD: -8.34%

Archer-Daniels-Midland Co (NYSE:ADM)

Beta: 0.46

Yield: 2.3%

YTD: 8.67

These low beta companies offer stable and ever-rising dividends that are above market-average and comparable to the yields offered by 10-year or greater Treasuries. Their performance in 2012, so far, has been varied.

Of the five listed equities, only MCD and PG are down year to date. McDonald's has declined 13.75 percent since the start of the year, but it is still up about 7.4 percent over the last 12 months, having been one of the better performing U.S. large-cap equities in 2011. Procter & Gamble, has been range bound for years and recently declined after lowering guidance for the year. PG is down about 6.5 percent over the last 12 months, and is the only listed equity that is down compared to its price one year ago.

So far in 2012, the best performer of those listed is McCormick, which is up 9.25 percent since the start of the year and 14.3 percent over the last year. Over the last 12 months, the best performing listed equity is CL, which appreciated by 15.26 percent.

These equities are also Dividend Aristocrats, which means they have increased their payout every year for at least 25 years. Increases are probable this year and next year, though changes to dividend tax policy could alter future business judgments as to whether dividend increases are an efficient enough use of funds.

The most impressive last announced dividend increase of these listed equities was by McDonald's, which raised its quarterly dividend by nine cents, from $0.61 to $0.70. This works out to a 14.75 percent dividend increase. Nonetheless, all of these companies had at least five percent dividend growth over the last year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: This article is intended to be informative and should not be construed as personalized advice as it does not take into account your specific situation or objectives.