______________________________________________________________________________________________________________________________

Wed. May. 26, 2010

11 Low Beta, High Quality Dividend Stocks *

In an economic downturn many investors turn to dividend stocks which are sometimes referred to as defensive stocks. These stocks offer sustainable dividends providing the investor with a minimum level of positive return, which helps buffer the downward pressure from the market. But what happens when the market turns up?

Beta: A Measure of Volatility

Beta (β) is a quantitative measure of the volatility of a given security or portfolio relative to the overall market, usually the S&P 500. By definition, the market has a beta of 1.0 and securities are ranked according to how much they deviate from the market. Thus, securities with a beta above 1 are more volatile than the overall market, while those with a beta below 1 are less volatile. High-beta stocks are considered more risky, but provide a potential for higher returns. Low-beta stocks normally provide less risk and lower opportunities for capital gains.

Betas And Dividend Stocks

Dividend stocks tend to have low betas. That means during a market downturn, they tend to decline less than the total market. Hence, the term defensive stocks. It is also important to note that many defensive stocks are non-cyclical. Examples would include food, tobacco, oil, and utilities where demand is remains stable under difficult economic conditions.

Here are several dividend stocks with betas (as provided by Google Finance) less than 1.00:

Company Analysis Beta % Yield
Cardinal (CAH) Link 0.80 2.35
AT&T (T) Link 0.68 6.83
Meridian (VIVO) Link 0.63 3.63
Coca-Cola (KO) Link 0.60 3.41
Becton, Dickinson (BDX) Link 0.58 2.06
Procter & Gamble (PG) Link 0.58 3.12
Johnson & Johnson (JNJ) Link 0.57 3.54
Kimberly-Clark (KMB) Link 0.48 4.29
Harleysville Group (HGIC) Link 0.38 4.15
Wal-Mart (WMT) Link 0.24 2.36
Abbott Laboratories (ABT) Link 0.18 3.69

When the market turns up, low beta stocks normally won’t increase as fast as the market in total. However, as a long-term dividend investor, my goal is an ever-increase stream of dividend income, not to maximize capital appreciation.

Full Disclosure: Long ABT, HGIC, JNJ, KMB, KO, PG, T, WMT. See a list of all my income holdings here.

(Photo: Steve Woods)


5 Responses to “11 Low Beta, High Quality Dividend Stocks *”

  1. Everyday Freethought says:

    How do you determine a stock’s beta? Are there websites that provide that info?

  2. D4L says:

    Everyday Freethought: Google Finance provides betas. See JNJ link below:

    http://www.google.com/finance?q=jnj

    Best Wishes,
    D4L

  3. Alan Leach says:

    D4L, Once positions have been taken and the dividend flow starts, I assume the goal is to simply sit back and watch those dividends grow over the years. The one thing that could upset this plan is if some of the companies became impaired or even bankrupt over the long run. What methodology do you employ to be confident that your holdings are still companies that you want to hold?

  4. D4L says:

    Alan: I currently track 198 companies. Once a week I freshen my Dashboard and look over the companies I hold. If the companies condition becomes too bad and i have a large position in it, I will sell off a portion. Also, I limit the amount I will hold in any single company to 5%.

    Best Wishes,
    D4L

Trackbacks/Pingbacks

  1. Best Dividend Stock Investing Posts of the Week – May 29, 2010