12 High-Dividend, Low-Beta Stocks to Consider During a Down Market

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Includes: AEP, CTL, DUK, ETR, EXC, LLY, MO, PPL, RAI, T, VZ
by: Efsinvestment

As Thursday’s doomsday situation gave a boost to the macro-economic worries, it is time to consider dividend stocks with low Beta values. Therefore, I looked for high-dividend stocks that have Beta values lower than 1. Their performance is not that much correlated with the market. Minimum dividend yield is 5%. Maximum payout ratio equals 100%. Thus, the dividends are fully covered by earnings. I expect the high yield to provide a softer cushion in case of a major downturn. I set the maximum P/E ratio to be 20. The list is mostly dominated by utility stocks, followed by telecommunication companies. However, that is very natural, given the defensive character of these sectors. Here is a list of 12 defensive high-dividend and low Beta stocks (data from finviz/Morningstar and is current as of Aug 5):

Ticker

Company

Sector

P/E

Dividend Yield

Payout Ratio

AEP

American Electric

Utilities

13.8

5.11%

67.46%

CTL

CenturyLink

Telecom

11.16

8.72%

97.92%

DUK

Duke Energy

Utilities

17.33

5.55%

93.93%

ETR

Entergy Corporation

Utilities

9.04

5.31%

47.51%

EXC

Exelon Corp.

Utilities

10.48

5.01%

52.47%

LLY

Eli Lilly & Co.

Healthcare

8.41

5.47%

46.32%

MO

Altria

Consumer

15.45

5.96%

92.84%

PGN

Progress Energy

Utilities

15.59

5.46%

85.38%

PPL

PPL Corporation

Utilities

11.05

5.28%

61.23%

RAI

Reynolds American

Consumer

14.61

6.31%

86.56%

T

AT&T

Telecom

8.72

5.98%

51.55%

VZ

Verizon

Telecom

15.59

5.58%

86.91%

Ohio-based American Electric engages in the generation, transmission, and distribution of electric power to residential and industrial customers. The company mainly operates in the central U.S. As of Aug 5, the stock is trading at a P/E of 13.8, and a forward P/E of 11.22. Analysts estimate 3.23% EPS growth for the next 5 years. Current yield is 5.11%. American Electric has a DD O-Metrix score of 5.5.

Century Link is an integrated communications company, providing local and long distance services, wholesale network access, internet access and other date services in continental U.S. As of Aug 5, the stock is trading at a P/E of 11.6 and a forward P/E of 12.26. Its dividend yield is 8.72%. While the high-payout ratio raises concerns regarding sustainability, the stock lost almost 25% since January. That is another reason why the yield is high now. Century Link has a DD O-Metrix score of 8.5.

Charlotte-based Duke Energy is an integrated energy company operating through three segments: U.S. Franchised Electric and Gas, Commercial Power, and International Energy. As of Aug 5, the stock is trading at a P/E of 17.33 and forward P/E ratio of 12.94. Analysts estimate 4% EPS growth for the next 5 years. With a nifty yield of 5.55%, Duke has a DD O-Metrix score of 5.

Louisina-based Entergy is another integrated energy company, engaging in electric power production and retail distribution operations. As of Aug 5, the shares are trading at a low P/E ratio of 9.04 and a forward P/E ratio of 10.23. Analysts estimate 3.3% EPS growth for the next 5 years. With a yield of 5.31%, Entergy has a superb DD O-Metrix score of 7.5.

Exelon, another high dividend electricity utility company, operates mainly in Illinois and Pennsylvania. The company also serves natural gas to its customers. As of Aug 5, the shares were trading a low P/E ratio of 10.48 and a forward P/E ratio of 13.85. Analysts estimate 2.56% EPS growth for the next 5 years. Yield is 5.01%. Based on these parameters, Exelon has a DD O-Metrix score of 5.2.

Eli Lilly, the only healthcare company in this list, is one of the largest drug manufacturers in the world. As of Aug 5, the company has a market cap of $42 billion. Its dividend yield of 5.41% is one of the best among its peers. The stock is trading at a low P/E ratio of 8.41 and a forward P/E ratio of 9.74. Even if we assume no growth for the next 5 years, Eli Lilly has a DD O-Metrix score of 5.9.

With a market cap of $54 billion, Altria is one of the largest cigarette retailers in the U.S. The company is highly profitable with a gross margin of 37% and net profit margin of 14.37%. It has a very low beta of 0.47. As of Aug 5, the stock is trading at a P/E ratio of 15.45 and a forward P/E ratio of 11.88. With a nifty yield of 5.87%, Altria has a DD O-Metrix score of 6.6.

Progress Energy recently announced its merger intention with Duke Energy subject to shareholder approval. As of Aug 5, Progress Energy is trading with a P/E ratio of 15.65, and a forward P/E ratio of 14.18. With a nifty yield of 5.45%, Progress has a DD O-Metrix score of 5. It looks like the market has already matched the value of Progress Energy with Duke Energy.

PPL Corporation, another cheap electric utility company has operations both in the U.S. and the U.K. As of Aug 5, the Pennsylvania-based PPL has a market cap of $15.3 billion. It is P/E ratio is 11.05 and forward P/E ratio is 11.17. Analysts estimate 8% EPS growth for the next 5 years. With a nifty yield of 5.27%, PPL has a DD O-Metrix score of 8.5. If the analysts’ estimates hold, I expect PPL to be an outperformer in the long-run.

North Carolina-based Reynolds American manufactures and sells cigarettes and other tobacco products in the U.S. As of Aug 5, the company is trading with a P/E ratio of 14.93 and forward P/E ratio of 12.13. With a yield of 6.17%, Reynolds American has a DD O-Metrix score of 7.7.

AT&T, a dividend pick for the next 5 years, makes it into the low Beta, high dividend list with a yield of 5.95%. It has a low Beta of 0.67. My fair value estimate range for AT&T is between $37 and $55. As of Aug 5, the stock is trading at a low P/E ratio of 8.72 and a forward P/E ratio of 11.35. Analysts estimate 6% EPS growth for the next 5 years. AT&T has a DD O-Metrix score of 9.

Verizon,the largest competitor of AT&T, has a market cap of $100 billion as of Aug 5. The stock is trading with a relatively higher P/E ratio of 15.65 and a forward P/E ratio of 13.43. Dividend yield is 5.56%. Verizon has a DD O-Metrix score of 6.2.

You can find more information of O-Metrix grading system, here.



Disclosure: I am long T.