Thursday’s market selloff once again proved the value of some of the biggest, most boring, high-yield dividend stocks. Indeed, while the Dow Jones Industrial Average was plunging as much as 180 points early in the session, a number of big dividend stocks with high yields and low volatility were actually putting up gains.
As the latest bout of market panic revealed, investors don’t just scurry for the safety of Treasuries and gold in a selloff. Dividend stocks with little volatility — that is, low-beta dividend stocks — are also a port in a market storm. That’s why it’s imperative to allocate a part of your equity holdings to big, low-beta dividend stocks with high dividend yields. These are the stocks that are going to provide ballast when the market finally blows off steam.
And blow it will. The S&P 500 has now gone more than 1,000 days without a 10% correction. Stocks are simply way overdue for a big pullback.
As we noted, the crisis in Portugal is an unusual suspect for a market correction, but that doesn’t mean the slide hasn’t begun. There’s just no way to tell. Corrections can’t be timed, but they are inevitable.
Bottom line: The correction is coming. It may even be here. And low-beta dividend stocks with high dividend yields are going to hold up much better than the overall market when it hits. To get an idea of where to seek safety from the correction, here are five big, low-beta dividend stocks with high dividend yields that rose when the market was plunging Thursday:
Low-Beta Dividend Stocks: Altria Group (MO)
Market Cap: $85 billion
Dividend Yield: 4.5%
As a tobacco stock, the main attraction of Altria Group (MO) is its generous, dependable dividend yield, but MO stock’s low volatility will also come in handy when the market finally starts its inexorable slide.
With a beta of 0.44, MO stock is highly uncorrelated with what the S&P 500 does. Indeed, MO stock can be thought of as 56% less volatile than the broader market. True, that means MO stock tends to underperform when everything is going up, but then it also outperforms — or holds up better — when stocks are selling off.
MO stock was actually positive for a time in early morning trades and remained essentially flat even when the Dow was off 180 points. That’s the kind of buoyancy investors in dividend stocks are counting on in a correction.
Low-Beta Dividend Stocks: AT&T (T)
Market Cap: $185 billion
Dividend Yield: 5.2%
The telecommunications sector is a fountain of generous, dependable dividend stocks, and none captures those characteristics more than AT&T (T). Not only is AT&T stock the top yielding dividend stock in the Dow Industrials, it also a stalwart of top 10 dividend stocks in the S&P 500.
True, AT&T stock stumbled along with the rest of the Dow early in the session, but the hit was brief and it soon rose into positive territory.
Zigging when the market is zagging is what you can expect from a stock with a beta of less than 0.3. As such, AT&T stock is essentially 70% less volatile than the S&P 500. That means AT&T stock won’t get sucked down to nearly the same degree as the broader market in the coming correction.
Low-Beta Dividend Stocks: Verizon (VZ)
Market Cap: $204 billion
Dividend Yield: 4.3%
Like fellow Dow component AT&T stock, Verizon (VZ) stock is a battleship when it comes to dividend stocks and volatility. Even when the market was doing its worst, shares in this telecom giant were unsinkable. Sure, VZ stock gapped down at the open, but after that it was all gains.
That’s what you get when a stock has a beta of … wait for it … 0.04. VZ stock’s low beta makes it almost inversely correlated with the broader market. The mega market cap and fat dividend keep VZ stock afloat in a down market and practically help it put up gains.
Very few if any stocks have a chance of positive price performance in a correction, but VZ’s low beta makes it one of them.
Low-Beta Dividend Stocks: HCP (HCP)
Market Cap: $19 billion
Dividend Yield: 5.3%
With a dividend yield of 5.3%, HCP (HCP) is one of the top dividend stocks in the S&P 500, but it’s also a low-beta champ. As a domestic healthcare real estate investment trust (REIT), HCP stock simply doesn’t correlate all that much with the S&P 500 — a highly diversified, multinational index.
So perhaps it should come as no surprise that when investors were panicking Thursday morning, rushing into Treasuries and gold, they also scooped up HCP stock. Heck, HCP stock was up as much as 1.3% before noon.
European credit worries might make for a good excuse for a correction, but they’re a world away from the operations of a U.S. healthcare REIT. When it comes to HCP stock, the market doesn’t care that a bank in Portugal missed a coupon payment.
Low-Beta Dividend Stocks: Teco Energy (TE)
Market Cap: $39 billion
Dividend Yield: 4.9%
The utilities sector is having a tremendous year, partly because investors are playing more defense at this point in a late bull market. Teco Energy (TE), having missed Wall Street earnings and revenue forecasts recently, hasn’t been participating in the fun, but it sure showed potential during the Thursday panic.
At 0.6, TE stock doesn’t have the lowest beta you can find, but it keeps rising when everything else is falling, those numbers are bound to change. After all, TE stock was up a good 1% when the Dow was hitting its session lows.
If past is prologue, TE stock — with its 4.9% dividend yield — will be a stock you want to own when the correction comes.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.