The optimist in you should be glad the market isn’t that volatile right now, but your inner pessimist should see that as a sign of a potential pullback.
Sam Stovall, chief equity strategist with S&P/Capital IQ, told CNBC that while March could end the month higher, only three out of 12 bull markets since World War II have been able to last as long as this current bull.
Of course, if the market is about to pull back, investors would be in good shape owning a few quality dividend stocks that are on the low end of the risk spectrum. (In fact, they’re in good shape owning them, pullback or not!)
However, you don’t want to get sucked into the idea that high yield is necessarily “safer” — in fact, high-yield dividend stocks can sometimes be the most volatile. So in addition to looking for good yield, you also want to take a look at the underlying business.
We’ll get you started with three sturdy dividend stocks that have proven able to weather the storm in choppy conditions.
Low-Risk Dividend Stocks to Buy: AT&T Inc. (T)
Dividend Yield: 5.4%
AT&T Inc. (NYSE:T) has an excellent yield of well more than 5% and a high but sustainable payout ratio of just less than 75% of this year’s expected earnings.
Moreover, AT&T is about as safe as it gets, as there’s nothing that should keep the company from continued dominance in its sector.
AT&T has a wireless market share of more than 32% and a mobile market share above 44%, enjoying a virtual duopoly with Verizon Communications Inc. (NYSE:VZ), which boasts respective shares of 36% and 33%. While Sprint Corp (NYSE:S) and T-Mobile US Inc (NYSE:TMUS) are making some inroads, there’s still not enough differentiation in offerings and price to cause a massive sea change.
Not one to shy away from new trends, AT&T wants to establish itself in the Internet of Things market, with plans to link its Drive car technology with its smart home tech, Digital Life. The Internet of Things is considered a quickly growing market, and AT&T fully expects to benefit in the coming years from strong growth in its Internet of Things ventures.
Wall Street analysts remain bullish on T stock as a long-term holding, particularly for large value-driven funds. In fact, as stock market basics tell us, funds often invest in increments over long periods — AT&T’s consistent stock price might show the company in an accumulation phase.
Low-Risk Dividend Stocks to Buy: Exxon Mobil Corporation (XOM)
Dividend Yield: 3.1%
Exxon Mobil Corporation (NYSE:XOM) is second in U.S. market cap only to Apple Inc. (NASDAQ:AAPL), and it’s easy to see why. As other energy stocks were hemorrhaging from low oil rates for the best part of 2014, XOM exhibited plenty of relative strength, dropping only around 11% while other oil stocks were cut in half.
That’s in large part because Exxon is now heavily diversified, sporting massive natural gas operations as well. And although natural gas prices had a volatile February, prices rallied by the end of the month thanks to an extended cold weather forecast across the major areas in the U.S.
Exxon’s quarterly dividend of 69 cents translates into a 3.1% yield, and XOM has paid a regular uninterrupted dividend since 1882. Not many companies can claim to have more than a century of dividend stability … but Exxon can.
While XOM stock’s payout ratio will suffer from a dip in earnings due to low oil prices, profits are due for a bounce in 2016, from $3.69 to $5.31, dropping XOM’s payout ratio from 75% to 50% over that time, and giving XOM stock more room for dividend growth. (Just don’t expect much of a bump this year.)
Low-Risk Dividend Stocks to Buy: Pfizer Inc. (PFE)
Dividend Yield: 3.2%
Short sellers have been keen on Pfizer Inc. (NYSE:PFE) lately, but there’s little threatening PFE’s long-term viability. Pfizer has more than $30 billion in cash and short-term investments and oodles of cash flow to keep up its dividend while acquiring companies to keep its drug pipeline flowing.
Hospira, Inc. (NYSE:HSP), for example, recently joined the ranks of Pfizer purchases with a price tag of approximately $15.2 billion, giving PFE access to Hospira’s extensive inventory of injectable biosimilars.
Not without its own innovations, Pfizer’s Ibrance drug was approved two months ahead of schedule for advanced breast cancer treatments in the U.S.
PFE stock yields more than 3%, and while its payout ratio of roughly 75% doesn’t leave a ton of room for growth, it also isn’t high enough to put the dividend in any danger.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.