5 Dividend Picks For Retirees, Plus 1 To Avoid

Includes: AGNC, KO, MDT, MO, MSFT, SO
by: Bear Fight

As investors prepare their portfolios for another tumultuous year led by headlines of global sovereign debt woes, retirees should focus on high-quality stocks that will be able to whether significant turmoil in 2012. Retirees should focus on equities with longstanding operating histories and diversified business models. These factors will help to grow earnings and dividends per share.

The equities outlined below are experiencing strong earnings and dividend growth, with dividend payout ratios (dividend per share / earnings per share) below 100%. Levels below 100% indicate the capacity to expand its dividend.

Screen Criteria:

  • Market Capitalization greater than $35 billion
  • Price to Earnings less than 20.0x
  • Debt to Equity less than 3.5x
  • Beta less than 1.0x
  • Dividend Yield greater than 2.5%

Medtronic (NYSE:MDT)

  • Market Capitalization: $40.3 billion
  • Price to Earnings: 12.1x
  • Debt to Equity: 1.8x
  • Beta: 0.87x
  • Dividend Yield: 2.5%

Altria (NYSE:MO)

  • Market Capitalization: $62.0 billion
  • Price to Earnings: 17.7x
  • Debt to Equity: 2.0x
  • Beta: 0.39x
  • Dividend Yield: 5.5%

Microsoft Corporation (NASDAQ:MSFT)

  • Market Capitalization: $218.4 billion
  • Price to Earnings: 9.4x
  • Debt to Equity: 0.4x
  • Beta: 0.99x
  • Dividend Yield: 3.1%

Coca-Cola Company (NYSE:KO)

  • Market Capitalization: $159.9 billion
  • Price to Earnings: 12.9x
  • Debt to Equity: 2.4x
  • Beta: 0.55x
  • Dividend Yield: 2.7%

Southern Company (NYSE:SO)

  • Market Capitalization: $39.8 billion
  • Price to Earnings: 18.9x
  • Debt to Equity: 3.4x
  • Beta: 0.30x
  • Dividend Yield: 4.1%

These equities have seen their earnings per share rebound from the recession and are back above pre-recession levels.

Equities to Avoid

I am avoiding mortgage agency REITs, including American Capital Agency (NASDAQ:AGNC). ANGC is a relatively new REIT, having started operations in 2008. A number of mortgage REITs have cut their dividends and veteran mortgage bond investor Jeffery Gundlach recently cut his holdings of mortgage REITs citing sensitivity toward prepayment rates.

American Capital Agency

  • Market Capitalization: $6.2 billion
  • Beta: 0.45x
  • Dividend Yield: 19.9%
  • Price to Book Value: 1.0x
  • Leverage 7.9x

Disclosure: I am long MDT, MO.