Investors continue to try deciphering cryptic messages from the Federal Reserve Governors, past Fed chairmen and the International Monetary Fund to determine where the economies and interest rates may head over the next 12 months. The lack of clarity in the interest rate and bond markets has investors looking back to an old friend for yields on their portfolios — dividend stocks.
Last year, dividend stocks struggled through the first nine months of the year as the markets fully expected the Fed to start ramping interest rates higher. Then, a cloudy outlook from Janet Yellen put these stocks back in play — a status that continues up to today.
The problem is, with volatility picking up in the equity markets, those dividend foragers who have moved from the relatively safe bond market over to equities may wind up getting motion sick from the day-to-day volatility.
For this reason, we have been scanning our database for what we refer to as the Steady-Eddie dividend stocks. Simply put, these are stocks that provide attractive dividends while trading with less volatility than the market.
Steady-Eddie Dividend Stocks to Buy: Coca-Cola Company (KO)
Beverage companies like The Coca-Cola Company (KO) have been undergoing a transformation as consumers are demanding healthier products. With changes to sports, water and healthier options, Coca Cola has steadied their fundamentals as well as their stock price.
For the last three months, Coca Cola stock has traded with 24% less volatility than the S&P 500, providing a consistent, deliberate trend higher. Year-to-date, Coca Cola shares are trading 7% higher, but there’s more.
Our valuation models have KO stock ranked a buy based on the combination of strong technical performance and the fact that the stock is undervalued by Wall Street analysts. Currently, less than half of the analysts covering the stock have it ranked a buy, with upgrades likely to roll in as Coca Cola stock maintains its strength.
With a 3% dividend yield, KO stocks offers a lower-volatility option for equity investors to grab income from their portfolio.
Steady-Eddie Dividend Stocks to Buy: Consolidated Edison, Inc. (ED)
Utility companies have been on a tear as investors have been looking for refuge from potentially weak equity markets. In addition, the utility sector traditionally offers higher dividend yields.
While it may be easy to start throwing darts at a list of utility companies to invest in, we prefer targeting dividend stocks with growth. This is where Consolidated Edison, Inc. (ED) comes in.
Con Ed shares have outpaced the rest of the utility sector so far in 2016, as the shares have returned 18% compared to 13% for the sector. The outperformance comes along with a strong dividend yield of 3.6%!
While we love the outperformance in both the dividend and shares price, it’s the pessimistic sentiment that really excites us. According to our database models, 0% (ZERO) of Wall Street analysts are ranking this stock as a buy. This stock is up more than 25% over the last 12 months and nobody has it ranked a buy.
This will change over the next few months, as we’re likely to see upgrades.
Similarly, the current short interest ratio on ED shares is 7.6, slightly lower than the 8.5 that we saw last week. This suggests that the short sellers are starting to cover their losing positions, otherwise known as a short squeeze.
Watch for this dividend yielder to continue to lead its sector and the market higher with a target of $80.
Steady-Eddie Dividend Stocks to Buy: Lockheed Martin Corporation (LMT)
Defense giant Lockheed Martin Corporation (LMT) has been trading on a steady path higher. The path has been so steady that its volatility measurements are 10% lower than the S&P 500. Lockheed’s dividend yield of 2.9% makes this low volatility even more attractive, provided that the S&P 500’s dividend yield is less than 2.5%.
From our model’s perspective, Lockheed’s upside potential exceeds the market as the stock is considered “underloved” in light of its performance. LMT stock has appreciated by 15% over the last 12 months while the S&P 500 has remained flat, meaning that the shares SHOULD be among those that Wall Street are heavily recommending.
This, of course, is not the case, as only 53% of the analyst community has LMT stock ranked a buy.
The continued strength, dividend and likely upgrades result in a price target of $240 for Lockheed Martin shares.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
