Though the labor market continues to improve, certain measures are beginning to show that inflation is slowing, moving away from the Federal Reserve's 2% target and not toward it. This could be a sign that the U.S. economy is getting weaker, despite a low unemployment rate.
But with the Fed looking like it's going to keep raising rates and certain sectors of the stock market looking a little shaky in recent days, investors may want to come back to a trade that's proved reliable in recent years -- dividends.
"While many would expect high dividend strategies to lag in such an environment, the opposite has been the case," RBC Capital Markets analysts led by Jonathan Golub wrote in a February 6 research note. "In fact, history shows that low volatility names - not high yielders - are actually the big underperformer as rates rise. Our work indicates that low volatility stocks have longer equity duration (more durable franchises), resulting in greater sensitivity to interest rates."
That may lead to investors looking to eschew the broader market averages (the NASDAQ is up nearly 17%, while the S&P 500 is up nearly 8% since the start of the year, in search of income.
Large companies with plenty of international exposure, including companies like Apple (AAPL) , AT&T (T) , Pfizer (PFE) and others may decline less than the overall market or could hold up as volatility increases.
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A company known for its iPhones, Apple is also a cash flow machine, generating enormous amounts of cash.
Since instituting its dividend and share repurchase program in 2012, Apple has raised its dividend every year, along with its share buyback program. It most recently raised its dividend by 10.5%, with a quarterly payout of 63 cents a share.
Apple has a 1.77% dividend yield, slightly below the 2.15% on the benchmark 10-year U.S. Treasury, but it also offers strong consumer adoption of its products and continuing innovation, like the recent HomePod speaker announced at its developer conference earlier this month.
AT&T is in the process of buying Time Warner (TWX) for $85.4 billion, but as a telecom, it provides stable free cash flow and a steady, high-yielding dividend that can offer protection against any market downturn.
At current prices, AT&T has a 5.03% yield, more than twice what the 10-year U.S. Treasury yields.
In addition, by adding Time Warner -- and its brands, including HBO and Warner Bros. -- AT&T may wind up adding additional protection to a recession, as content tends to outperform during market downturns.
Boeing (BA) is headlining the Paris Air Show this week, but the company's history as a dividend payer is just as exciting.
Boeing has a 2.89% yield and has been one of the best performers in the Dow this year, with shares rising 25%.
At the Paris Air Show, the company announced it won several new orders, including ones for its new Boeing 737 MAX single aisle aircraft.
Pfizer (PFE) is an American pharmaceutical company best known for its Viagra drug, but it also has a sturdy 3.86% yield, one which could protect investors from any market downturn.
At a market cap of $198 billion, it's the world's third-largest independent biotech company.
Pfizer shares are flat on the year, underperforming the 8% gain in the S&P 500.
Merck (MRK) has a 2.95% yield, significantly higher than the yield that the 10-year U.S. Treasury yields.
Shares of Merck are up nearly 5%, excluding dividends, year-to-date, compared to a 8% rise in the S&P 500.
Tyson Foods (TSN) , best known for its chicken products, has a stable dividend and a share buyback, which could be cut if it fell on hard times to protect the dividend, according to Eric Ervin, CEO of Reality Shares.
The company, which sports a 1.46% yield, could see stability in fiscal 2018 as the environment for chicken, prepared foods and beef continues to get better.
"While the revised FY17 guide has elements of upside, we see stable Chicken, leverage in Prepared and a favorable Beef environment as all contributing to FY18 growth," KeyBanc Capital Markets analyst Brett Andress wrote in a February research note to clients.
Texas Instruments (TXN) , which makes semiconductors for everything from automobiles to phones, has benefited from the Internet of Things (IoT) trend, according to Ervin.
"Tech has the strongest overall fundamentals," Ervin noted, with Texas Instruments' latest results highlighting the strength in the semiconductor industry.
Texas Instruments has a 2.46% yield. You don't need your trusty TI-89 to calculate that's a handsome payout.
Expeditors International (EXPD) is a Seattle-based logistics and freight forwarding company.
It has a 1.47% yield and shares are up more than 7% since the start of the year.
Best known for its Spam products, Hormel Foods (HRL) has expanded into several areas of the supermarket, including refrigerated foods and fresh grocery to help grow revenue.
"Favorable cost inputs and strong returns on marketing behind Muscle Milk, Wholly Guacamole, Skippy, Compleats, Justin's and Applegate Farms are driving the sales growth for the Grocery division," Credit Suisse analyst Robert Moskova wrote in a February research note to investors.
Shares of Hormel, which are negative on the year, have a 2.01% dividend yield.
Verizon (VZ) is currently undergoing significant change, as it digests its $4.5 billion acquisition of Yahoo!'s core brands, as well as significant competition from smaller wireless competitors, such as T-Mobile USA (TMUS) and Sprint (S) . But one that hasn't changed is its rock-solid dividend.
Though the company has significant amounts of debt, thanks in part to its consolidation of Verizon Wireless (it had previously been in a joint venture with Vodafone (VOD) ) a few years back, it has a 5.1% yield at current prices, more than twice the 10-year U.S. Treasury yield.
Investors should be wary of any big acquisition though -- Verizon has been rumored to make any number of large-scale acquisitions, including Charter Communications (CHTR) .
Johnson & Johnson (JNJ) has finally closed on its Acteliion purchase, getting the Swedish drug maker for nearly $30 billion. But that hasn't impacted its returns to shareholders.
The New Brunswick, N.J.-based pharmaceutical has a 2.47% yield, just slightly lower than the 10-year U.S. Treasury. However, the company has been growing its consumer business, which includes products like baby shampoo, which should provide some revenue growth.
Comcast (CMCSA) is a cable, entertainment and media giant, but it also has a healthy balance sheet, able to fund ongoing projects and give back to shareholders.
Its shares yield 1.58%, aided by a run-up since the start of the year. Comcast shares have gained approximately 13%, compared to an 8% gain in the S&P 500.
Upcoming catalysts could be the continued roll-out of its Xfinity wireless service, outperformance at the box office thanks to "Despicable Me 3" and slowing subscriber losses at its cable division.
Microsoft (MSFT) has become the de facto number two in the cloud services game with its Azure platform, but the tech giant also has a rock solid balance sheet to boot.
Yielding 2.22%, shares of Microsoft have also been on a tear the past 5 years, gaining 130%, well outperforming the broader NASDAQ and S&P 500.
Along with Azure, Microsoft is working on owning several next-generation platforms, including mixed reality (Hololens), gaming consoles (Xbox One X) and continues to make advancements with its valuable Office business, which it has turned into a software-as-a-service platform, thanks to Office 365.
J.P. Morgan (JPM) shareholders just got a relief, as the Federal Reserve said all 34 banks it tested, including J.P. Morgan, passed its annual stress test. But it's the company's dividend which keeps its shareholders warm at night.
Shares yield 2.3% currently, but given the results of the stress test, the bank, led by CEO Jamie Dimon, may seek to raise its dividend and give back more to shareholders.
Editors' pick: Originally published June 23.
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