5 Income Stocks Offering Downside Protection
As you might expect, I get lots of requests from StreetAuthority readers looking to supercharge their income with payouts that are three to four times higher than the market average. I think one of my recent recommendations in my premium newsletter, High-Yield Investing, fits the bill (the stock has a yield of 8%).
#-ad_banner-#But I also receive letters from retirees willing to accept half of that in exchange for lower volatility and reliable “all-weather” performance. With capital preservation as the foremost goal, they don’t want to take risks with their nest egg. As such, these readers are mostly interested in rock-solid companies built to deliver consistent profit and dividend growth even in tough conditions.
We have a diverse audience in High-Yield Investing, so I try to provide a mix of recommendations that will speak to everybody. And the stock screen I’d like to share with you today is primarily aimed at more conservative investors. However, even younger subscribers with aggressive goals should tune in — because we’re looking at blue-chips that can help anchor your portfolio.
Why Consumer-Staple Stocks Belong In Your Portfolio
There are many wild cards that could rattle the market in the weeks and months ahead… an earnings recession, war games in Asia, the topsy-turvy Presidential election. Plus, the economy is showing signs of stalling out. At times like this, it pays to own businesses whose products are always in demand.
I’m talking about products like toothpaste, milk, laundry detergent, deodorant and pet food. We don’t stop buying these things just because GDP slows or interest rates climb. Unlike, say, new furniture, purchases of these consumer staples is non-discretionary. So the manufacturers that sell these goods are largely shielded from economic downturns.
While not impervious, they can continue to generate cash and maintain (or even grow) dividend distributions when conditions cool. And that’s exactly why the Dividend Aristocrats list (stocks with 25+ consecutive years of dividend hikes) is filled with names like Sysco Foods (NYSE: SYY) and Johnson & Johnson (NYSE: JNJ).
In fact, consumer staples stocks account for the highest weighting of any sector (more than telecom, utilities, energy, and technology combined).
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As I mentioned, these stocks generally don’t offer exorbitant dividend yields. But they can still cream the major averages over time, particularly in down markets. Aside from having recession-resistant product portfolios, the well-managed companies in the table below also have stable earnings and solid double-digit returns on equity. They also offer dividend yields at least 50% higher than the S&P 500, with a pattern of raising their distributions most years.
The great Warren Buffett once opined that “if you don’t feel comfortable owning something for 10 years, then don’t own it for 10 minutes.” That’s not bad advice.
Consumer staples stocks make for great long-term holdings since you don’t have to worry about earnings drying up whenever the economic winds change.
The companies in this list are all recognizable, except perhaps for the one at the top. However, while B&G Foods (NYSE: BGS) may not be a household name, I’m betting you are familiar with its products — some of which might even be in your pantry right now. Among other favorites, the company makes Cream of Wheat cereal, Ortega taco shells, Le Sueur peas, and Don Pepino spaghetti sauce. These are just a handful of more than three dozen brands in the B&G family, representing everything from condiments to bagels.
Don’t expect astronomical growth — this is a mature industry. But sales have doubled from $544 million to $1.2 billion over the past five years. And quarterly dividends have done the exact same, doubling from $0.21 per share to $0.42.
The current 3.5% yield falls short of being eligible for my High-Yield Investing portfolio. But at the rate it’s growing, the payout could become a 7% income stream over the next five years. Meanwhile, the stock has made money 7 out of the past 9 years, including a hefty 49% advance in 2016. Throw in the defensive characteristics of this industry, and BSG deserves a look.
Keep in mind, this is just my quick analysis of one of the companies in this table. The investing ideas presented here are merely meant to provide a good starting point for further research. You may find that one of the other stocks mentioned in this table is more to your liking.
Better still, if you’d like to know my top income stock recommendations, then give High-Yield Investing a try. At $39 for a one-year subscription, you won’t find a more high-quality, cost-effective way of finding some of the absolute best high-yielders the market has to offer. Go here to learn more.