5/5/2011 7:01 PM ET
As investors get more defensive, stocks with high dividends are starting to outperform. Ambev, Merck and Abbott Laboratories are worth considering.
Related topics: Freeport McMoRan, Abbott, Merck, dividends, Jim Jubak
When markets get iffy, dividends look spiffy. (And, yes, I just made that up.)
I'm seeing evidence that investors are making a defensive shift as the global growth story gets less certain and as more central banks embark on cycles of interest rate increases to fight inflation.
From August 2010 until this February, energy, materials, cyclical manufacturing and commodity stocks led the market. Defensive sectors such as utilities, consumer staples and health care lagged behind.
Best dividend stocks for 2011
That changed at the beginning of April. Energy and commodity stocks have started to underperform. In April, health care, consumer staples and utilities outperformed.
Let's compare two stocks: miner Freeport-McMoRan Copper & Gold (FCX, news) and major drugmaker Abbott Laboratories (ABT, news).
In 2010, Freeport McMoRan killed. The shares returned 51.94%, far better than the 15.06% return on the Standard & Poor's 500 Index ($INX). Abbott got killed. The stock returned a negative 8.08% for the year. That's more than 23 percentage points worse than the S&P 500 index.
Jim Jubak
Over the last month? It's just one month, so Freeport McMoRan can't be said to have collapsed, but the stock has lost 2.96%. Abbott stock, on the other hand, did kill. It returned 8.02% for the month.
Whistle "The World Turned Upside Down" (1643 version) if you know it.
And it's not just Abbott. Merck (MRK, news), a drug stock that went nowhere in 2010 (total return -- 2.79%, and that was all due to the dividend), climbed 10.1% in just the last month. The major drugmakers as a whole were up 8.7%.
Sectors like consumer staples, health care and utilities are attractive to investors when the market seems risky because the stock prices at these companies tend to hold up better than, say, the price of a technology or cyclical mining stock. That's because revenue and earnings in those sectors hold up relatively well when the economy hiccups. (When the economy goes into crisis, nothing holds up especially well, unfortunately.)
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It also helps that these defensive stocks pay dividends -- and relatively high dividends at that. Merck's stock price may not have shown a gain for 2010, for example, but the stock's better-than-4% dividend pushed the total return for that year to 2.79%. Better than a money market and better than the yield on most Treasurys.
Where my dividend portfolio has beenThis is the background for my latest revision of my dividend income portfolio.
I last did a major overhaul of my picks for the best dividend stocks on May 28, 2010 -- although I added Intel (INTC, news) to the portfolio in September 2010.
The environment then was very different. A lot of stocks were still selling at depressed prices and therefore offering exceptionally juicy dividend yields. In that update, I added Banco Santander (STD, news), yielding 8.5%, and Total (TOT, news), yielding 6.5%. Those two picks have done more than OK. Besides their hefty dividend payouts over the last year, the stocks have appreciated in price by 20.9% and 32.1%, respectively. (To see how the entire portfolio has done since its re-launch in October 2009 and since May 2010, go to the top of the portfolio page for my dividend income portfolio.)
But now we're looking at a stock market that has rallied pretty much nonstop for the last year, so that many of the hefty yields of yesterday have turned into much more modest payouts. Banco Santander, thanks to the euro debt crisis, still pays 6.87%, but the yield on Total is down to 4.65%. On Intel, which I added when the stock was yielding 3.4%, a 24.4% gain in price since September 2010 has taken the yield down to 2.84%.
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This is the background for my latest revision of my dividend income portfolio.
I last did a major overhaul of my picks for the best dividend stocks on May 28, 2010 -- although I added Intel (INTC, news) to the portfolio in September 2010.
The environment then was very different. A lot of stocks were still selling at depressed prices and therefore offering exceptionally juicy dividend yields. In that update, I added Banco Santander (STD, news), yielding 8.5%, and Total (TOT, news), yielding 6.5%. Those two picks have done more than OK. Besides their hefty dividend payouts over the last year, the stocks have appreciated in price by 20.9% and 32.1%, respectively. (To see how the entire portfolio has done since its re-launch in October 2009 and since May 2010, go to the top of the portfolio page for my dividend income portfolio.)
But now we're looking at a stock market that has rallied pretty much nonstop for the last year, so that many of the hefty yields of yesterday have turned into much more modest payouts. Banco Santander, thanks to the euro debt crisis, still pays 6.87%, but the yield on Total is down to 4.65%. On Intel, which I added when the stock was yielding 3.4%, a 24.4% gain in price since September 2010 has taken the yield down to 2.84%.
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