As someone who works in finance, I talk to investors on a
dailybasis . While some are experiencing success, others are
struggling just to stay in the game. Each one of them has a
different way ofinvesting , but they all have the same
In fact, in the past four years, this bone of contention about
themarket has only become more prominent. I'm talking about low
volatility in thestock market.
Although it may seem counterintuitive, the discontent
surrounding the market's low volatility is a realissue today. On
one hand, investors do want toput theirmoney in low-riskstocks .
On the other hand, the current low-volatility environment isn't a
result of a healthy market per se -- it is a direct result of the
2008 stock market crash, which resulted in fewer investors with
less money to invest.
It all started with the tech crash of 2000, which left many
investors' portfolios devastated. These same investors persisted,
and were able to rebuild their portfolios until the markets were
smacked down again in 2008 and many, once again, sustained brutal
Now, these investors have either spent their investablecash on
simply surviving or are afraid to re-enter the stock market
If you can't beat them, then join them
If you are a reader of Elliott Gue's
Top 10 Stocks
, then you probably know about the critical role dividends play
in supercharging your portfolio returns. In fact, as we enter the
" -- a period where ALL of the market's returns in the next
decadewill come from dividends -- investors should focus on
stocks that consistently grow their dividends if they want to
increase theirinvestment returns.
History has shown that low-volatility stocks produce higher
returns over time than riskier ones. However, during strongbull
markets as is the case now, low-volatility stocks
Take a look at the chart of the
iPath S&P 500VIX STFutures ETN (
, which replicates the S&P 500VIX Short-Term Futures Total
ReturnIndex . The index reflects the implied volatility of the
S&P 500 Index.
So rather than complaining about the market's low volatility,
investors should use it to their advantage by buying
low-volatility stocks that pay consistent dividends.
Here are the two top low-volatility stocks that consistently pay
dividends. They are also included in the
Vanguard DividendAppreciation ETF (
PowerShares S&P 500 Low Volatility ETF (
, which clearly indicates they fit the bill as low-riskdividend
1. Wal-Mart (
With amarket cap of more than $240 billion, this behemoth retail
chain seems to have taken over the United States.
The phenomenal growth has resulted in its dividend increasing
98% in the past five years. The king of all retailers has a
30-year record of consistently paying dividends. The stock yields
nearly 3% and has a 23%payout ratio .
Shares have kept pace with the S&P 500 so far this year,
climbing about 6%.
During the past year, Wal-Mart has increased itsearnings from
$4.55 to $5.02 a share.Analysts have projected an additional
earning increase to $5.35 this year. In addition, a recent foray
into social media and mobile solutions called @WalmartLabs
assures the company's ability to morph with the changing retail
Technically, shares have pushed above resistance at $74 and
are quickly moving toward all-time highs above $75. Technical
resistance is likely at the all-time highs, so waiting for a
pullback to the $72support level or buying on a breakout close
above the $75 range makes sense.
2. McDonald's (
This fast-food juggernaut yields 3%. It has doubled its dividend
payout during the past five years, but at the expense of its
The payout ratio is around 50%, which isn't cause for worry in
and of itself. But if it continues to increase, it lowers the
chances that dividend growth will continue.
The company's price-to-earnings (P/E ) ratio is 18 -- higher
than the average of 14 for the S&P 500 but the low end for
restaurant stocks. An added bonus to owning this low-volatility
kingpin is that it is the second-largest holding in the Bill and
Melinda Gates Foundation's $17 billion charitable trust.
Risks to Consider:
Low-volatility stocks tend to underperform during bull
markets but have been proven to hold their own duringbearish
periods. But so far this year, many low volatility stocks have
kept pace with the overall market. How long this can be expected
to continue is anyone's guess. Remember, anything can happen,
even with the most solid companies. Always use stops and position
size properly when investing.
Action to Take -->
Both of these low-risk dividend payers have solid fundamental and
technical reasons for investment. History tells us both companies
should hold up should the market fall with higher volatility.
Wal-Mart is a buy on a breakout close above $75, for a 12-month
target price of $80. McDonald's is a buy on a breakout close
above $100, and my 12-month target on McDonald's is
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