When nearly every stock has fallen sharply in value, it may be hard to take comfort in any fundamental investment advice. What good does it do to "stay the course" when your retirement assets are vanishing in real time? Despite the market's loss of nearly a sixth of its value in only a few weeks, the stocks of companies with strong dividend records remain a relatively safe haven.
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Market downturns spur a flight to safety by investors. Demand for U.S. treasury securities has risen, ironically, since Standard & Poor's downgraded the U.S. credit rating to AA+ from AAA. That's because few people feel there's a safer investment out there, despite what S&P says. Similarly, blue-chip stocks have held up better than other equities. While all stock indexes have plunged, the decline in the Dow Jones Industrial Average of 30 big stocks has been smaller.
Not so long ago, the market was being supported by strong corporate earnings reports and attractive prospects for individual companies. Even if the overall economy was not doing well, we were reassured that the market is composed not of economies but of companies, and that many of these firms were thriving in a weak economy.
While the prospect for slower economic growth will reduce the outlooks for companies, too, the fact remains that many companies will continue to do well. Equity analysts at S&P (yes, that S&P, but a different set of analysts) maintain a list of their highest-rated stocks. S&P says it looks for stocks in the top 40 percent based on dividend yield, the top 60 percent based on their balance-sheet ratio of cash to assets, and the top 60 percent based on their projected one-year earnings per share growth.
[See What to Do With an Old 401(k).]
Here are the 20 stocks that emerged from their screening:
| High Quality Stocks with Solid Prospects and Dividends | |||||
|---|---|---|---|---|---|
| Company Name | Ticker Symbol | Market Capitalization ($ billions) |
Dividend Yield % | Cash to Assets % | Projected EPS Growth % |
| Abbott Laboratories | ABT | 79.8 | 3.1 | 13.6 | 59.8 |
| Avon Products | AVP | 11.3 | 3.4 | 12.9 | 20.7 |
| Eaton Corp. | ETN | 16.4 | 2.1 | 4.0 | 27.7 |
| Emerson Electric Co. | EMR | 36.9 | 2.7 | 6.8 | 13.1 |
| Erie Indemnity Co. | ERIE | 3.6 | 2.6 | 4.5 | 3.7 |
| General Electric Co. | GE | 190.2 | 2.2 | 11.3 | 5.4 |
| Genuine Parts Co. | GPC | 8.4 | 3.1 | 8.4 | 7.6 |
| Health Care REIT Inc. | HCN | 9.3 | 5.2 | 20.4 | 192.3 |
| Healthcare Services Group | HCSG | 1.0 | 3.7 | 27.4 | 9.2 |
| Home Depot Inc. | HD | 55.6 | 2.7 | 4.2 | 8.7 |
| Johnson & Johnson | JNJ | 177.6 | 3.0 | 24.8 | 11.7 |
| McDonald's Corp. | MCD | 89.7 | 2.5 | 6.0 | 6.6 |
| Medician Bioscience Inc. | VIVO | 0.9 | 3.5 | 18.1 | 30.5 |
| National Health Investors | NHI | 1.3 | 5.3 | 4.0 | 15.2 |
| Northwest Bancshares Inc. | NWBI | 1.3 | 3.3 | 9.5 | 14.9 |
| Oneok Inc. | OKE | 7.8 | 2.4 | 6.7 | 13.0 |
| Paychex Inc. | PAYX | 10.2 | 4.4 | 8.6 | 6.4 |
| Pepsico Inc. | PEP | 101.4 | 3.0 | 4.4 | 14.4 |
| Sempra Energy | SRE | 12.1 | 3.1 | 5.0 | 13.0 |
| Sonoco Products Co. | SON | 3.2 | 3.4 | 5.5 | 26.3 |
| Source: S&P Equity Research | |||||
For investors seeking the protection and diversity of a mutual fund, Morningstar fund analyst Greg Carlson recently screened dividend funds to identify the best performers. His picks are based on data as of the end of July, and thus don't reflect recent market gyrations.
When Carlson reviewed dividend funds, he came away largely disappointed, so investors need to carefully review fund offerings. "Many actively managed funds, even those that appear to have a mandate to seek out dividends, still give shareholders only paltry payouts," he wrote. "Less than half of the funds with 'dividend' in their names that hold at least 90 percent of their asset in stocks recently boasted either a one-month or 12-month trailing yield of more than 2 percent net of fees."
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Carlson found four funds that stood out for above-average dividend yields, as well as good performance records and experienced management.
Vanguard Equity-Income (symbol VEIPX) focuses on solid companies with lots of cash. This fund had a 12-month payout of 2.72 percent and carries a low expense ratio of 0.31 percent.
Allianz NFJ Dividend Value (PEIDX) favors low-debt firms. "The high-minimum institutional share class's modest fees have boosted its yield (3.04 percent over 12 months)," Carlson said, "but the fund's no-load D shares don't cost much more."
American Beacon International Equity (AAIPX) invests in foreign stocks and its results have bested two-thirds of its peers during the past 10 years. "Its recent 1.85 percent 12-month yield is a reflection of the relatively attractive valuations of dividend payers, the fund's well-below-average expense ratio, and the fact that non-U.S. firms often sport solid yields," Carlson's assessment said.
American Funds International Growth and Income (IGAAX) is less than three years old, but has experienced managers. It has also shown impressive results. The fund charges higher fees but sports higher yields to date—3.3 percent over the past 12 months, after a 0.93 percent expense ratio. Holdings are relatively heavy in foreign utilities and telecommunications stocks.
Twitter: @PhilMoeller
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