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The Dow Jones Industrial Average recently marked its longest losing streak since 2011. Recall that for all of 2011, the stock market finished basically flat with low single-digit returns for the major indexes.
It seems like a lifetime ago, but 2011 was an incredibly newsworthy and volatile year for global markets. There were fears of the European Union falling apart on debt woes, fears of a hard landing in China, and a downgrade to America’s sovereign debt rating after Republican hardliners refused to raise the debt ceiling.
Good thing the eurozone is now buttoned up tight, China’s growth is robust and the far right isn’t all worked up over federal spending now that it’s 2017… right?
In addition to these big macro risks, the hard reality is that we are in year eight of an aging bull market DJIA, -0.20% That’s the second-longest run on record, second only to the 1990-2000 run. No stock-market rally in history has ever reached the 10-year mark.
The takeaway, then, is simple: Now may be the time to take some money off the table, and get defensive.
But even if you’re inclined to go “risk off” in the months ahead, don’t make the mistake of thinking the only alternative to stocks is to hide out in cash. In truth, there remain a few very attractive low-risk dividend plays that should hang tough even if the market does take a turn for the worse.
Here are five such investments I’m watching right now:
Dividend yield: 2.8%
Cincinnati Financial Corp. CINF, -1.03% is a diversified insurance company that flies under the radar of most investors. With a market capitalization of about $11 billion, it is roughly a third the size of big boys like Travelers TRV, -1.04% and Allstate ALL, -0.61% but it is as well-run an outfit as any in the space. Take as proof, for instance, its seven consecutive quarters of topping earnings expectations by 10% or more. Or take its 50-plus years of consecutive dividend increases. The reliability of this company makes it very attractive if you’re worried about market turmoil in the coming months. And besides, rising rates will be kind to insurers like Cincinnati Financial that re-invest the “float” of their premiums in interest bearing assets.
While many are worried the financial sector is perhaps falling out of favor, don’t lump in this stock with some overbought banks; this midsize insurer is a great low-risk investment here.
Dividend yield: 4.1%
Health-care stocks are admittedly a bit up in the air after the drama surrounding a failed repeal and replacement of Obamacare. But the good news is that no matter what happens with the U.S. health-care system, Teva Pharmaceuticals Industries TEVA, +0.27% will be well-positioned to profit thanks to its focus largely on generic drugs. Yes, margins are much thinner in this arena and don’t leave much room for error, as investors found when Teva offered weaker-than-expected 2017 guidance a few months back. But the stock has been thrown away by so many rash investors that it now trades for less than 7 times forward earnings, and plenty of negativity is already priced in.
Besides, you don’t get much more this recession-proof than the health-care sector, since consumers will cut back on just about anything before they will stop taking medications that improve their quality of life. And even if times get really tough, Teva’s cheaper generic drugs will continue to be filled in pharmacies around the world. With a great valuation and a dividend over 4%, this stock is a perfect low-risk play right now.
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Energy Transfer Equity
Dividend yield: 6.1%
Energy Transfer Equity LP ETE, +2.88% is one of the largest pipeline operators in North America, and is structured as the general partner of some of the biggest names in energy — Energy Transfer Partners LP ETP, +1.92% Sunoco Logistics Partners LP SXL, +1.85% and Sunoco LP SUN, +0.83% This MLP is more of a utility than an energy company, however, since it operates some 71,000 miles of pipelines and charges third-party companies for transportation and storage of natural gas rather than worrying about extraction or sale.
That all supports a very reliable 6%-plus dividend yield, and while distributions haven’t seen a bump since 2015, the stage is set for higher payouts in the near future.
The company’s management has irked many on Wall Street over the last year what with its controversial pull-out of a merger with Williams Companies WMB, +2.62% But the fundamentals are sound, the valuation is right and the dividend is a great hedge against hard times in the coming months.
Dividend yield: 4.7%
This is not your grandfather’s boring old AT&T Inc. T, -0.26% stock. Sure, it is still a cash cow supporting a juicy 4.7% dividend, but it’s also a dynamic telecom play that is well-suited for the 21st century. The proposed $85 billion merger with CNN and HBO parent Time Warner Inc. TWX, +0.15% is effectively a done deal, as it was approved by Time Warner’s shareholders in February. That will give AT&T even greater influence over content. And, of course, there is the 2014 acquisition of DirecTV for $67 billion that has been paying off nicely as AT&T looks to move solidly into video.
As for the “old” elements of the biz, AT&T has forged ahead with a faster 5G network that will ensure it remains dominant in wireless and data services. Sure, the top line should be flat this year and next, and earnings growth will be subdued. However, it’s important to note AT&T is still growing slightly and reliably beating Wall Street expectations. A forward P/E of less than 14 is the icing on the cake for entrenched telecom that will weather any storms Wall Street sees in the coming months.
American Electric Power
Dividend yield: 3.6%
American Electric Power Co. AEP, -0.66% is one of the largest electric utilities in the United States with a $34 billion market cap, more than 26,000 megawatts of generating capacity and nearly 5.4 million customers in 11 states. All that scale has allowed for a rock-solid track record of dividend payments over more than a century and a current yield of 3.6%. All that would be very attractive in troubled times, but lately AEP has been gathering momentum on hopes of a more favorable regulatory environment given its relatively high use of coal-powered plants compared with other utilities. Donald Trump signed yet another executive order this week, this time dismantling Obama-era climate policies and pollution controls, and that will surely only boost this utility’s profitability going forward.
Even after its recent run, however, AEP trades for only about 17 times forward earnings and is more fairly valued than some other utilities out there and is worth an investment at current levels.