Retirees are being confronted with a huge dilemma.
In the past, investors on the verge of retirement could simply
shift intofixed-income assets and still generate plenty of income
to support a comfortable lifestyle.
Take the 10-YearTreasury note for example, considered the
safestasset in the world for being backed by the fullcredit of the
Just 12 years ago, theyield on thesebonds was about 6.7%. That
meant an investor with $1 million in retirement savings could
generate close to $70,000 of annual income frominvesting in the
U.S. government bonds. And that's not even factoring in capital
gains as yields continued to fall and pushbond prices higher. It
was a powerful combination that set the foundation for many
But fast forward to 2013 and things could not be more
Now, high-risk fixed-income assets such as the
iShares iBoxx $ High YieldCorporate Bond (
, an exchange-tradedfund ETF that tracks anindex of high-yielding
bonds, only yields 6.6%, which is low for these so-called "junk"
bonds. And the 10-Yearnote ? With a yield of just 1.9%, retirees
are starving for yields that could support even a modest
That has pushed many yield-hungry retirees into
large-capdividend stocks . The problem is that these large-cap
dividend stocks are not as stable as fixed-income assets,
especiallyTreasuries . Even safeblue chips like
Coca Cola Co. (NYSE
International Business Machines (NYSE
are vulnerable tomarket volatility.
But by adding a very simple metric, retirees who decide to take
the plunge into high-yield blue chips can add an extra layer of
stability to their portfolios.
I'm talking aboutbeta .
Simplyput , beta is a measurement of astock 's stability. A
reading of 1 means that a stock should trade mostly onpar with the
S&P 500, while a stock with a beta of 0.5 means that if the
S&P 500 falls 5%, this low-beta stock should only fall about
half of that, or about 2.5%. Low-beta stocks traditionally don't
have as much kick to theupside , but for investors looking for
yield and stability, it's a concession many are happy to make.
Here is a list of nine high-yield, low-beta stocks that can help
retirees avoid unwanted market volatility while generating an
impressive stream of income. Out of the nine, I like
Reynolds American Inc. (
because of their balanced combination of stability, high yield and
9 Ultimate Stability Stocks
Verizon is a global leader in data and cellular-transmission
services with amarket cap of $121 billion. Verizon continues to
benefit from thebullish trend in mobile devices and
data-transmission services, with sales andearnings steadily
climbing in the past four years out of therecession of
That shows up on the chart, where a steady grind higher for the
past two years has lowered Verizon's beta to half the S&P 500
at 0.51. Analysts are looking for earnings of $2.82 per share in
2013, good for a 16.5% earnings growth. That hasshares trading at
15 timesforward earnings , in line with its 10-year average and
only a slight premium to the S&P 500. And when you throw in a
hefty 4.8% dividend, Verizon is a nice combination of income and
Reynolds American Inc. (
Reynolds American manufactures and sells cigarettes and other
tobacco products in the United States and has a market cap of $23
billion. With a highlyinelastic customer demand that is less
sensitive to economic fluctuations than other companies and
industries, Reynolds is a popular pick for investors looking for
Shares of Reynolds have seen steady gains in the past two years,
up a market-beating 48% and pushing Reynolds's beta to a highly
tempered 0.59. Analysts are looking for earnings of $3.12 per share
in 2013, a respectable 6% growth projection. That has shares
trading at just 14 times forward earnings, in line with the 10-year
average and the S&P 500. And with adividend yield of 5.6%,
Reynolds offers the highest yield on our list.
Risks to Consider:
No stock operates in a vacuum. If the market comes under
pressure during the debt ceiling debate, low-beta stocks will
be down less than high-beta stocks, but they will most likely trade
Action to Take -->
Dividend stocks are in favor with investors because of their income
potential in a very low-yield environment. Dividend stocks also
tend to be less volatile than growth stocks, another reason why
investors have been attracted to the group. But when you add in a
low beta filter, high-yield dividend stocks are the ultimate in
income and stability. And with Verizon and Reynolds American
looking inexpensive relative to their peers and the market, these
two stocks are at the front of the pack.
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