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Protect Against Pullback: Non-Cyclicals With Strong Dividends
When taking a look at the S&P 500 over the last three and a half months, we see a huge jump, and the S&P has only started to slow in the last two weeks. The S&P has been flat since June 1, and has even seen major resistance to the 200-day exponential moving average since June of 2008. As you can see in the chart below, there have been major pullbacks every time the S&P gets close to the 200-day EMA, specifically in May of 2008 and August of 2008, and it's just bounced off the average this month. (Learn more in Moving Average Bounce.)
S&P500, 200day EMA
If you want to start protecting part of your portfolio against a pullback, large non-cyclicals or dividends might be the answer. Given their nature, non-cyclicals will not be affected as much in a down or up market. Finding a couple with decent dividends would be a bonus.
Food Plays
HJ Heinz is a classic play on a product that can't be substituted. The company has been meeting or beating estimates in the last four quarters, and has a 4.5% dividend yield that looks sustainable. There's also The JM Smucker's Company, which is a $5.5 billion company with a huge pop this week. This could be a little over heated in the short term, but long-term thinkers will want to consider this stock. For the three months ending April 30, 2009, earnings per share (EPS) are up 19% to 80 cents, and revenues increased over 80% from $590 million to $1.07 billion on a comparable period basis. Dividends yield 3% and sit at 35 cents per share, up from 32 cents last year.
Up in Smoke?
Tobacco stocks might be hurt in the short term due to the recent bill passed to restrict the advertising of products. Don't expect a continued slump as this is nothing new to the demonized industry. Recently, Reynolds came out on top of a $1 billion dollar patent-infringement case with Star Scientific (Nasdaq:STSI), which put positive pressure on RAI.
Bottom Line
This sideways market with a potential dip could be suggesting that investors seek a little more protection. High dividend-yielding stocks sitting in industries that fair well through recessions can provide that protection.
S&P500, 200day EMA
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| Figure 1: The S&P500 200 Day EMA |
| Source: Metastock |
If you want to start protecting part of your portfolio against a pullback, large non-cyclicals or dividends might be the answer. Given their nature, non-cyclicals will not be affected as much in a down or up market. Finding a couple with decent dividends would be a bonus.
Food Plays
HJ Heinz is a classic play on a product that can't be substituted. The company has been meeting or beating estimates in the last four quarters, and has a 4.5% dividend yield that looks sustainable. There's also The JM Smucker's Company, which is a $5.5 billion company with a huge pop this week. This could be a little over heated in the short term, but long-term thinkers will want to consider this stock. For the three months ending April 30, 2009, earnings per share (EPS) are up 19% to 80 cents, and revenues increased over 80% from $590 million to $1.07 billion on a comparable period basis. Dividends yield 3% and sit at 35 cents per share, up from 32 cents last year.
| Company | Dividend Yield |
| HJ Heinz (NYSE:HNZ) | 4.6% |
| The JM Smucker\'s Company (NYSE:SJM) | 3% |
| Reynolds America (NYSE:RAI) | 9.1% |
| Phillip Morris International(NYSE:PM) | 5.1% |
| Altria Group (NYSE:MO) | 7.8% |
Up in Smoke?
Tobacco stocks might be hurt in the short term due to the recent bill passed to restrict the advertising of products. Don't expect a continued slump as this is nothing new to the demonized industry. Recently, Reynolds came out on top of a $1 billion dollar patent-infringement case with Star Scientific (Nasdaq:STSI), which put positive pressure on RAI.
Bottom Line
This sideways market with a potential dip could be suggesting that investors seek a little more protection. High dividend-yielding stocks sitting in industries that fair well through recessions can provide that protection.
by
Peter Cherewyk
Peter Cherewyk has worked in the financial field for over 10 years. He completed his Bachelor of Commerce from the University of Alberta, and is currently working towards a Chartered Financial Analyst designation. He enjoys hockey and hiking and the opportunity to teach others.
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