Decades from now, economic historians will look back at this
period as the era of exceptionably low interest rates. Just as
people now shake their heads in disbelief of double-digit Treasury
yields and mortgage rates in the early 1980s, years from now people
will envy our sub-4% mortgage rates and wonder why anyone ever lent
the U.S. government money at a fixed 1.5% for 10 years.
Unfortunately for savers and income investors, this era of low
rates is
likely to continue for the foreseeable future
. But there is one place where investors can still generate solid
income on their investments:
dividend stocks
.
A Smoother Path to Outperformance
Despite the fact that stocks have generated the highest returns for
investors over the long run compared to any other asset class, many
investors shun them because of their relatively high volatility.
But there is a smoother path to strong returns in stocks for any
investor.
The first step on this path is to focus on dividends. Total return
comes from two places: price appreciation and dividends. While
stock prices will fluctuate daily depending on the headlines of the
day, companies usually pay out stable quarterly dividends, often
with annual increases. So investors who focus on dividends generate
smoother total returns year-to-year than those who rely on price
appreciation alone.
The next step for investors worried about volatility in the stock
market is to lower their beta.
Beta Defined
Beta measures a stock's volatility relative to the volatility of
the overall stock market. The market - often represented by the
S&P 500 - has a beta of 1. So a stock with a beta of 1
generally moves in the same direction as the overall market. A
stock with a beta greater than 1 tends to be more volatile than the
market. But a stock with a beta of less than 1 tends to be less
volatile than the market.
Please note, however, that beta is far from perfect as a measure of
risk, so make sure to do your homework before investing in any
stock.
4 Stocks to Consider
For investors looking for stable income and less volatility than
the overall stock market, here are 4 high yield, low beta stocks to
consider:
McDonald's Corporation
(
MCD
)
Dividend Yield: 3.4%
Beta: 0.39
The Golden Arches offers investors stability and consistently
rising income. With a beta of just 0.39, the stock moves less than
half as much as the overall stock market. On top of that, it has
increased its dividend every year since 1976. Since 2000, it has
increased it at a remarkable 25% compound annual rate.
General Mills, Inc.
(
GIS
)
Dividend Yield: 3.2%
Beta: 0.17
General Mills has a portfolio of famous brands like Cheerios, Betty
Crocker, Pillsbury, Green Giant, Yoplait, Nature Valley, Old El
Paso and Häagen-Dazs. And these consumer staples don't fluctuate
much with the overall economy. This stability has allowed General
Mills to go 113 years without a dividend cut. And since 2000, it
has increased its dividend at a compound annual growth rate of 8%.
Baxter International Inc.
(
BAX
)
Dividend Yield: 2.6%
Beta: 0.50
Baxter International is a health care company mainly focused on
products to treat hemophilia, immune disorders, infectious
diseases, kidney disease, trauma, and other chronic and acute
medical conditions. It reports its results in two segments:
BioScience (44% of total sales) and Medical Products (56%). Its
positioning in the healthcare sector provides it with both growth
and defense. The company has grown steadily throughout all economic
conditions and has increased its dividend at a compound annual
growth rate of 10% since 2000.
Chesapeake Utilities Corp
(
CPK
)
Dividend Yield: 3.2%
Beta: 0.35
Chesapeake Utilities is a diversified utility company with three
primary business segments: Regulated Energy (Natural Gas &
Electric Operations), Unregulated Energy (Natural Gas Marketing,
Propane Operations), and Other (Advanced Information Services).
Chesapeake distributes natural gas to over 145,000 residential,
commercial, and industrial customers on the Delmarva Peninsula and
across portions of Florida. Its stable business model has allowed
the company to increase its dividend every year since 2004 at a
compound annual rate of 3%.
The Bottom Line
Through solid dividends and low betas, it is possible for income
investors to earn strong yields in the stock market with relatively
low volatility. These 4 stocks offer just that.
Todd Bunton is the Growth & Income Stock Strategist for
Zacks Investment
Research
and Editor of the
Income Plus Investor service
.
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Learn More>>
BAXTER INTL (BAX): Free Stock Analysis Report
BAXTER INTL (BAX): Free Stock Analysis Report
CHESAPEAKE UTIL (CPK): Free Stock Analysis
Report
CHESAPEAKE UTIL (CPK): Free Stock Analysis
Report
GENL MILLS (GIS): Free Stock Analysis Report
GENL MILLS (GIS): Free Stock Analysis Report
MCDONALDS CORP (MCD): Free Stock Analysis
Report
MCDONALDS CORP (MCD): Free Stock Analysis
Report
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