It’s hard to tell what the markets want to do right now. The S&P 500 lost almost 4% last week, and the Nasdaq took it even worse, but both indices have bounced back a little.
Still, a rest doesn’t mean a market correction has been warded off entirely, and the big losers of late — biotech, big tech, financials, healthcare — would likely be the ones leading a correction down even lower.
But amid the early April blues, there were several sectors of strength, including basic materials and utilities. The stocks to buy were boring, dividend-paying companies.
And in the coming weeks, the best stocks to buy will probably be more of the same — boring and mundane.
So, if you’re looking to get into a more defensive posture in case the market does shed some more in coming weeks, months or worse, you might consider these five, utterly unsexy stocks that throw off reliable dividends and should remain upright.
Unsexy Stocks to Buy: ConocoPhillips (COP)
Good news out of Alaska Monday as the U.S. Department of Energy renewed ConocoPhillips’ (COP) permit to export up to 40 billion cubic feet of liquified natural gas over the next two years. That puts COP first on our list of unsexy stocks to buy.
The announcement dovetails nicely with the company’s plans for the future. At its recent analyst meeting in New York, COP said that it aims to grow production and margins by 3% to 5% annually. COP is spending $16 billion per year developing new resources and is looking to invest most of that in areas that can deliver a minimum margin of $30 per barrel of oil equivalent.
With a dividend yield of 3.9%, COP stock appears ready to grow again.
Unsexy Stocks to Buy: Teco Energy (TE)
If you live on the west side of Florida you might be familiar with this Tampa-based company. Teco (TE) operates Tampa Electric, a regulated utility serving 700,000 customers; Peoples Gas System, Florida’s largest gas distributor with over 350,000 customers; and TECO Coal, a coal miner with operations in Kentucky and Virginia.
In May 2013, Teco announced that it was moving beyond its Florida borders to acquire New Mexico Gas Co. for $750 million in stock and the assumption of $200 million in debt. The deal gives Teco an immediate 50% increase in the number of regulated electric and gas utility customers it serves in both Florida and New Mexico. This acquisition will add to earnings in 2015 and provides stable revenue on top of a Florida business that’s expected to see earnings rise by 13% in 2014.
Most importantly, the dividend yield for TE stock is currently 4.9%, which is its average for the past five years. This certainly isn’t one of the sexiest stocks to buy, but it’s a great choice for stable income.
Unsexy Stocks to Buy: Reynolds American (RAI)
Income investors know tobacco companies are some of the best stocks to buy when it comes to dividend yield. And, surprisingly, tobacco companies as a group are up 3.5% year-to-date through April 14. Reynolds American (RAI) leads the way with a gain of 10% and pays out $2.68 in annual dividends — good for a 4.9% yield at current prices.
What is RAI doing that sets it apart from the others? It brought out a digital e-cigarette called Vuse that will go nationwide by the middle of this year.
According to GuruFocus, Vuse has a computer chip installed that modulates the product’s performance while maintaining flavor consistency. Although marketing costs will rise as RAI introduces its own version of the big trend in cigarettes, the top line will more than take care of any additional expenditures. Given that cigarette sales on this side of the Atlantic continue to decline, any growth is good news indeed. While cigarette stocks aren’t everyone’s taste they’re great to own for stable income, and RAI’s at the top of the list.
Unsexy Stocks to Buy: HCP Inc. (HCP)
HCP is a real estate investment trust focused exclusively on the healthcare sector. It’s the only REIT to be included in the S&P 500 Dividend Aristocrats Index, having increased dividends for 29 consecutive years. While mundanely consistent, HCP stock has taken it on the chin the past year, down 23% through April 14 — 39 percentage points worse than the S&P 500 and almost twelve percentage points worse than its peers.
However, it’s hard to overlook its very healthy 5.4% dividend yield. Although considered a play on senior housing, it actually invests in other areas of healthcare including hospitals, medical offices, life science office campuses and skilled nursing facilities. Investors should take comfort in that diversification.
Unsexy Stocks to Buy: CenturyLink (CTL)
Providing the highest dividend yield of the bunch at 6.3%, CenturyLink (CTL) is also the riskiest. That said, it doesn’t mean you should ignore the stock entirely. CTL appears to be improving its service while expanding its product offerings to customers. With $2.6 billion or more in free cash flow expected in 2014, CTL has plenty to maintain its dividend.
CEO Glen Post is optimistic about its future: “We believe this improving revenue trend, along with the strategic opportunities in the marketplace, position as well for future revenue growth and cash generation.”
CTL operates a mature business with a lot of debt. That said, it does participate in an industry with incredibly high barriers to entry. Translation: Its business isn’t going to collapse anytime soon, and you can expect the dividend to continue. That makes it an unsexy stock, but one that still easily makes our list of stocks to buy.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.