Top Dividend Stocks in a Down Market


Like most investors still braving this market I keep trying to find a safe place to invest that provides decent returns. With a stock market that seems to have many more down days than up days, it is hard to have confidence in future growth prospects. However with interest rates falling rapidly, saving money in even the best of high yield savings accounts seems to offer little return in real terms. There is one bright spot however and a good option for medium to long term investors – High Dividend Stocks. Amongst the S&P 500 (whose yield is approaching a record 3%) there are some relatively stable, good quality stocks with significantly above average dividend yields. These stocks have not escaped the market beating, but they have held up better than most and at current prices offer attractive entry points for long term investors. Here is a table of some high dividend paying stocks I am considering, based on a recent screen where I looked for stocks that met the following additional criteira: Business model than can wether a severe economic downturn, PEG less than 2, market capitalization greater than $20 Billion, strong earnings growth (>5% over 5 years) and stock price nearer it’s 52 week low than its 52 week high (cheaper entry point).

Top Dividend Stocks

The stocks from the table fall into 3 main sectors – consumer related, utilities and pharmaceutical. Sectors that are much more recession proof that others, and have good longer term profiles. Drug companies like Eli Lilly (LLY) have had more challenges, amid a paucity of blockbuster new drugs. But LLY with a 5.5% dividend yield is viewed as relatively safe with bright prospects relative to its competitors.

Stocks such as Coca-Cola (KO) are considered relatively safe picks even in a painful global recession. Coke posted better-than-expected third-quarter profit growth of 14%, as strong growth from international markets helped offset weakening U.S. beverage sales. About 81% of Coke’s profit came from foreign markets last year, and the company has expanded in emerging markets.

Although utilities’ shares have fallen sharply, some investors and analysts see their dividends as stable, and argue that the shares could be strong because they will outperform in a downturn. Goldman Sachs recommends American Electric Power (AEP), Consolidated Edison and Entergy. These stocks have dividend yields between 3.7% and 6%. I like Dominion Resources (D) in this space as well because of the company’s strong position, growth prospects and ability to weather a severe downturn because of its geographical location.

If individual stock picking is not for you, then consider a dividend focused ETF or Fund. Some included the Dow Jones Select Dividend Index (DVY), Vanguard Dividend Appreciation (VIG), First Trust Morningstar Div Leaders (FDL) or for a more global flavor the PowerShares Intl Dividend Achievers (PID). Just go to Google or Yahoo finance to get the latest prices and yields for all the stocks and ETF’s mentioned in this post.

As always I encourage you to do your own research and to remember that dividend yield should not be the only metric you use to consider when buying a stock. Some high-dividend stocks can be dangerous, especially as corporate profits fall, cash flows shrink and companies find it more difficult to make these payments to shareholders. Dividends generally are the second expenditure that companies trim to conserve cash in a downturn, after stock buybacks. Some investors piled into Bank of America in the past few months, attracted by a dividend yield that topped 7%. But earlier this month, the bank slashed its dividend in half, sending its shares lower. So always look for the health of the company and stock, before the dividend yield. The companies I have included in the above table are first and foremost good companies/stocks, which enables them to have an above average, sustainable dividend yield.

Related Posts:
~ Understanding Options – The Comprehensive Reference Guide for Beginners
~ Dividend Reinvestment Plans (DRIPs)- A great investment
~ A new goal : $300 monthly passive income by year end

Leave a Reply

6 Comments on "Top Dividend Stocks in a Down Market"

Notify of

[…] Buying ~ Before Buying Stocks: Your Pre-Investing Checklist ~ How Stock Markets Performed in 2008 ~ Top Dividend Stocks in a Down Market ~ Reflections on the […]

[…] chip stocks with good growth potential, yet defensive enough to weather an economic downturn via a high dividend and diversified business model. Here’s what makes them appealing and worth considering for your […]

[…] stock investing links: ~ Before Buying Stocks: Your Pre-Investing Checklist ~ Top Dividend Stocks in a Down Market ~ Stock Selection – 5 Things to […]

[…] does come to mind and which I received early in my investing days, is to ensure I reinvested my dividends rather than fritter them on unnecessary expenses. When I first started received dividends I used to […]

[…] leaving investors unsure of what that will mean for their IBM positions. Will the IBM stockholders make money or lose […]

[…] andys2i The Federal Reserve will soon allow banks with strong enough capital cushions to raise dividends, making them much more attractive to local and foreign investors. Only banks that satisfy new […]


Previous post:

Next post:

Disclaimer: The information contained on Saving to Invest (this site) is for general information purposes only and does not constitute factual or professional financial advice. In accordance with FTC guidelines, we disclose that we may have a financial relationship with some of the merchants/companies mentioned on this website. We do our best to maintain current information, but due to the rapidly changing environment, some information may have changed since it was published. Please do the appropriate research before participating in any third party offers. Refer to the Privacy Policy and Terms of Use for more information