Stocks have retreated after three days of gains early last week but major indexes are still near their all-time highs. While rising oil prices and dovish comments by the Fed Chair boosted stocks, there is no shortage of worries for investors in this market and it remains to be seen if investors will be able to overcome those worries and take the indexes to new highs.
In the near term, there is more likelihood of consolation with a downwards bias. Investors' lack of conviction in the rally is evident from the fact that defensive sectors like Utilities and Telecom have remained buoyant. Gold is now near its three-week high and bond yields continue to plunge with heavy investor demand, signaling investors do not believe global growth is going to pick up anytime soon.
Last week, investors pulled a lot of money out of stocks and poured into bonds.
The most important event this week is the Fed's meeting on Tuesday and Wednesday. However, the outcome of the meeting will likely be a non-event with the market already pricing in no hike. But there are more events in the coming weeks - including the Brexit vote on June 23 to decide whether or not the UK will remain within the European Union - that will keep investors on the edge.
Recent economic data have been mixed and failed to offer any significant clues about the health of the economy or set the mood in the market. Uncertainty surrounding the outcome of the presidential election will also keep stocks vulnerable. In fact, jittery investors could dump stocks if there is any change in sentiment, like we saw on two earlier occasions over the past 10 months.
In such a scenario, investors should increase their allocation to high quality, dividend paying stocks and ETFs.
Cincinnati Financial (NASDAQ:CINF)
Cincinnati Financial is one of the top 25 property and casualty insurers in the US. The company, which was started by independent insurance agents, has an agent-centered business model. They market a broad range of property casualty insurance products.
This S&P 500 dividend aristocrat, with a juicy dividend yield of more than 2.7%, has been increasing its dividend for the last 55 years in a row - a record matched by only eight US public companies.
The insurer reported much better-than-expected Q1 results - their fourth beat in a row - sending estimates surging. CINF currently enjoys a Zacks Rank #1 (Strong Buy).
Lowe's Companies (NYSE:LOW)
Lowe's is a leading home improvement retailer, which operates primarily in the U.S., Canada and Mexico. The company reported better-than-expected fiscal first quarter results and also upgraded their guidance for fiscal 2016.
Lowe's currently holds a Zacks Rank #2 (Buy) and also has a top style score of "A" for Value, Growth and Momentum.
Lowe's has increased its dividends for more than 50 consecutive years and has also been increasing shareholder value through buybacks. The stock has an excellent average annual total return of 20.5% over the past 25 years.
Vanguard Dividend Appreciation ETF (NYSEARCA:VIG)
VIG is the most popular ETF in the dividend space with AUM exceeding $21 billion. The fund follows the Nasdaq US Dividend Achievers Select Index, which is composed of high-quality stocks that have a record of increasing dividends over the past decade. The product holds 185 securities in its basket.
The fund has the highest allocation to industrials currently while consumer goods and consumer services round out the top three. The ETF charges just 9 bps in annual fees while its dividend yield is 2.14%.
Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD)
SCHD provides a low cost, diversified exposure to high dividend-paying stocks. It holds 113 high-quality stocks that have a record of consistent dividend payments. Stocks in the underlying index are selected on the basis of four fundamentals - cash flow to total debt, return on equity, dividend yield and five-year dividend growth rate and also screened for dividend payment consistency, size and liquidity. The fund charges just 7 basis points for annual expenses.
Consumer Staples, Information Technology and Industrials are the top three sectors the fund has invested in currently. Pfizer (NYSE:PFE), Chevron (NYSE:CVX), J&J (NYSE:JNJ) and Exxon Mobil (NYSE:XOM) are among the top holdings. The dividend yield is 2.9% as of now.