A few weeks ago I gave you some cyclical dividend payers that would do well if the U.S. economy started turning around.
At the same time, I also said I continue to think a more-defensive posture makes the most sense, especially for conservative income investors.
That has only become truer over the last few weeks. After all, we recently learned that the nation’s unemployment rate ticked up … that manufacturing activity has slowed down … and that there are plenty of slowdown signs in various overseas economies, too.
So what types of companies tend to do best during slower times?
The three traditional “safe haven” sectors are consumer staples, utilities, and healthcare. Historically speaking, these three groups have best weathered prior recessions. They also tend to pay very generous dividends through thick and thin.
I’m currently recommending a number of these companies in my Income Superstars newsletter, but I’m always looking for more great names.
That’s why I recently did the following screen.
I limited my search to the three groups named above. And then I went a couple steps further …
First, I limited my search to companies that have increased their dividend payments at least 5% over the last five years.
Second, I insisted that their stocks are currently yielding at least 3% a year.
Here are the 38 names that came back …
You can see that I’ve also included a few additional measures to study.
The first is each stock’s beta.
This indicates how much a given stock can be expected to change relative to a rise or fall in the market. For example, if the market drops 10% a stock with a beta of 1 would be expected to drop 10% as well. Under the same scenario, shares with a beta of 0.3 should drop just 3% … while a beta of 2 would suggest a 20% decline in the individual issue.
I’ve also included each company’s current payout ratio.
I often show this measure because it is one of your biggest indicators on the health and sustainability of any given dividend payment. After all, if a company’s dividends represent just 20% of its annual profits, it has plenty of coverage to keep sending out checks even if results suffer during an economic downturn.
What About the Names That Turned Up?
There are a number of well-known names on this list. And four of them are already in my model portfolios.
But one stock that I had never heard of before was UGI.
This gas utility operates both a regulated business as well as an unregulated propane distribution operation. In doing some further research, I found that about 75% of the company’s outstanding shares are owned by institutional investors, which should provide nice stability to the stock and is probably one of the reasons for the relatively low beta.
Plenty of other gas utilities also made the list, and many boast similarly solid financials and low volatility.
Meanwhile, I still prefer Altria because of its dominant market share, but the company’s rivals — Reynolds American and Lorillard — are worth looking at, too. They each boast nice yields and healthy dividend growth.
Also keep in mind that tobacco companies have historically continued rising in price even during some of the most severe economic downturns.
And last but not least, there’s what we might consider the “safest” stock on this entire list — Flowers Foods. I say that because this maker of breads and bakery products’ beta of just 0.16 suggests it would take a truly cataclysmic market drop to really move the stock!
Meanwhile, FLO has been in business since 1919 and produces many products that you may be familiar with — including Tastykake, Sunbeam, Holsum, Nature’s Own, and other brand names. With a solid (and growing) dividend yield … it’s definitely another one I’ll be watching in the future.
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