Many investors are shaken coming off a rocky month for U.S. equities, in which the market lost a whopping $2 trillion in October. For those unaccustomed to such massive market swings — having reaped healthy returns during the near 10-year bull market — dividend plays may serve as more nerve-calming bets.
In an interview with CNBC on Tuesday, Miller Tabak equity strategist Matt Maley recommended that income-oriented investors consider shares of energy companies Chevron Corp. (CVX) and Exxon Mobil Corp. (XOM), and consumer products giant Kimberly-Clark Corp (KMB).
Energy Sector Insulated from Threat of Rising-Rates
This week, General Electric Co. (GE), once considered one of the best yielding stock picks, slashed its dividend to just a penny a share. The industrial conglomerate was removed from the Dow Jones Industrial Average (DJIA) index earlier this year and has been working on propping up its balance sheet in light of massive issues including a struggling power business.
With market dynamics changing fast, Maley urges investors to reconsider their dividend plays, recommending that they look at three factors before purchasing. Dividend plays should not only pay a healthy dividend but should also be consistently upping the dividend over time. Third, especially in the current market environment, wherein equities are relatively sold off, the Miller Tabak analyst recommends seeking stocks that are oversold and "can give you a nice bounce."
Both Chevron and Exxon fit these criteria, he said, with shares down 10.8% and 4.7% YTD, respectively, versus the broader S&P 500's 1.4% increase.
"Those aren't the sexiest names in the group and may not give you the most capital appreciation, but they both yield more than 4% and they both have increased their dividend every year for more than 30 years," said Maley. "They're getting quite oversold and actually they're starting to turn up just over the last couple of days."
Weakness in the energy sector has dragged stocks' relative strength indexes (RSI) below 30 in October, signaling oversold conditions.
Chantico Global CEO Gina Sanchez chimed in on the CNBC segment, noting that energy stocks are more isolated from the risk of rising interest rates due to strong industry fundamentals.
"I do believe that there's a bit of a floor under oil prices, and I think that's going to be beneficial to the energy stocks," Sanchez added.
Maley also highlighted consumer products maker Kimberly-Clark, whose shares have fallen 13.6% YTD, citing the stock's 3.8% yield. The company has upped its dividend in each of the last 45 years, noted the strategist.