With the recent rout in various commodities and global growth concerns now creeping back into the headlines, investors are understandably getting nervous. After all, it was only a few years ago that the Great Recession took hold. With that in mind, U.S. Treasuries have once again become the asset class du jour as investors flocked to funds like the iShares Barclays 7-10 Year Treasury ETF (NYSE:IEF).
However, with yields on fixed income investments such as bonds, CD's and money market funds painfully low, they offer now real solace to investors looking for any sort of return. Luckily, investment bank Barclays (NYSE:BCS) has some other advice for investors to weather any approaching storm- dividend stocks.
Dividends, Dividends, Dividends 
According to a new research note from the British bank, stocks that pay steady and rising dividends are the place to be as worries about the health of the global economy begin to take hold. Barclay’s notes that “stocks in the sweet spot of monetary policy- high quality, high dividend yield, low volatility- are supporting the broader market.” A group of four sectors- including healthcare, utilities, energy and financials- are each outperforming the S&P 500 by a wide margin month over month. The bulk of that outperformance has come from the group’s dividend payments.
SEE: Why Dividends Matter

There’s certainly a method to Barclay’s madness.
Dividends can help smooth out returns as these payments can help cushion the downside in falling markets. Reinvesting those payments can help enhance returns when the market rights itself. According to data compiled by Ned Davis Research, over the last 36 years, dividend stocks have outperformed the rest of the S&P 500 by 2.5% annually. More importantly, they outperformed non-payers by nearly 8% each year.
Blue chip stocks with strong corporate balance sheets and cash flow are already paying much more than treasuries. Yet, companies with a history of raising payouts are especially warranted. Unlike a bond which pays a fixed rate, with stocks you could potentially get a higher dividend year after year. Yields on the 10-year Treasury bond recently fell below 2%. When accounting for inflation, that equates to a less than 0% yield.
Overall, Barclay’s predicts that these “Bond-like Stocks” will continue to outperform over the longer haul and over the next few months as global growth concerns could come to fruition.

SEE: Banking On Blue Chip Stocks
Finding Those Bond-Like Stocks
With market volatility rising, now could be the best time for investors to add strong dividend payers to a portfolio. One of the best choices could be the Vanguard Dividend Appreciation ETF (ARCA:VIG). The fund is an index of stocks that have raised dividends over the last 10 straight years. The fund’s holdings- such as Coca-Cola (NYSE:KO) and Chevron (NYSE:CVX) -are exactly the kind of companies that Barclays is talking about. These large-cap names with strong global footprints are most likely to provide sustained growth during troubled times. VIG has a rock bottom expense ratio and currently yields 2.17%.
Another broad buy could be iShares Dow Jones Select Dividend Index (ARCA:DVY). The fund tracks a basket of dividend stocks. However, the iShares fund is bit more concentrated at 101 holdings and focuses more on current yield rather than dividend growth. As such the ETF produces a 3.93% dividend. Expenses are higher for the fund at 0.40%. Similarly, investors looking for more global muscle from their dividend investments could use the iShares Dow Jones International Select Dividend Index (ARCA:IDV). This ETF follows an analogous index to DVY, but shifts that focus to firms located outside the U.S.
Finally, one of Barclay’s biggest recommendations for investors looking for bond-like stocks is in the utilities sector. Even in times of uncertainty, consumers, businesses and municipalities still need to power their operations and cool their homes. Water still needs to flow and electricity hums through power lines. That makes firms like American Electric Power (NYSE:AEP), Consolidated Edison (NYSE:ED) and DTE Energy (NYSE:DTE) powerful dividend payers through thick and thin.

SEE: Trust In Utilities
The Bottom Line 
With concerns about the global economies health, investors are once again facing a quandary- how to balance portfolio growth with safety. Luckily, they have a powerful tool at their disposal. By betting on large-cap stocks that pay healthy growing dividends, portfolios should be able to navigate whatever the market throws at them.      
 At the time of writing, Aaron Levitt did not own shares in any companies or funds mentioned in this article.

Related Articles
  1. Personal Finance

    6 Common Misconceptions About Dividends

    Six reasons why some advisors recommend dividends and why sometimes this may be unsound advice.
  2. Markets

    Due Diligence On Dividends

    Understanding dividends and how they work will help you become a more informed and successful investor.
  3. Investing Basics

    How And Why Do Companies Pay Dividends?

    If a company decides to pay dividends, it will choose one of three approaches: residual, stability or hybrid policies. Which a company chooses can determine how profitable its dividend payments ...
  4. Investing Basics

    What Dividends Say About Stock Health

    Dividend payments may reveal information about the future prospects of a company.
  5. Investing Basics

    Banking On Blue Chip Stocks

    Discover what makes blue chip stocks such attractive investments.
  6. Fundamental Analysis

    Why Dividends Matter

    Seven words that are music to investors' ears? "The dividend check is in the mail."
  7. Investing Basics

    How Dividends Work For Investors

    Find out how a company can put its profits directly into your hands.
  8. Investing

    In Search of the Rate-Proof Portfolio

    After October’s better-than-expected employment report, a December Federal Reserve (Fed) liftoff is looking more likely than it was earlier this fall.
  9. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  10. Investing

    Where the Price is Right for Dividends

    There are two broad schools of thought for equity income investing: The first pays the highest dividend yields and the second focuses on healthy yields.
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  3. What are the dividend reinvestment options for a mutual fund?

    There are two primary choices for how investors can choose to handle dividend distributions made by mutual funds that they ... Read Full Answer >>
  4. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  5. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  6. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>

You May Also Like

Trading Center