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Be Prepared for Earnings Season with these Stocks

The overall tone at the start of the earnings season is looking downbeat.  The S&P 500 index is on pace for its fourth day of declines over concern the global economic slowdown was hurting profits and causing companies to lower their outlooks.  The index is testing the technical support level of 1,440.  If the overall earnings picture does disappoint, the market can break the support level and fall into correction territory.

But as important as beating consensus earnings expectations for the third quarter are, it is even more important to provide reassuring enough guidance for the fourth quarter and beyond.  The overall earnings scorecard for the third quarter is that we have 28 companies from the S&P 500 already report results as of this morning (October 10), with total earnings down 4.9% from the same period last year and less than half of the companies beating earnings expectations.

It is still early in the earnings season, but if the quality of guidance remains weak, then estimates for the fourth quarter will have to come down from current expectations.  Prudent investors will want to protect against this potential decline by seeking safety in high quality dividend stocks.  Here are some stocks to consider if the earnings season disappoints and the markets pullback from current levels.

Food producer Conagra Foods (CAG) is showing price strength in the past few weeks on the heels of several analyst upgrades.   Conagra beat Q1 earnings and raised 2013 earnings outlook.  In addition, Conagra raised its dividend 4% and now has a dividend yield of 3.60%.  The Company has a low beta of 0.46 meaning it has low price volatility compared to the overall market.  Conagra has an equity summary score of 9.6 out of 10 for a VERY Bullish outlook.

Ketchup maker H.J. Heinz Co. (HNZ) has a flat stock price which is up only 5% year to date but it is a stable stock with a low beta of 0.50.  Heinz is continuing to exhibit strong sales in emerging markets, where organic sales rose 19.3% last quarter.  Heinz is increasing marketing efforts in the U.S. as shoppers remain frugal with their grocery budgets.  The Company has a current dividend yield of 3.63% that was increased 7.3% in the past year.  Heinz has an equity summary score of 9.1 out of 10 for a VERY Bullish outlook.

Medical device maker Medtronic (MDT) has a 1-year total return of 32%. However, it is still considered a low volatility stock with a beta of 0.67.  Medtronic just agreed to buy China Kanghui Holdings (KH) for $816 million in cash, in a growth move to enter China’s medical device market to accelerate its overall globalization strategy.  The Company has a current dividend yield of 2.41% that was increased 7.2% in the past year.  Medtronic has an equity summary score of 9.1 out of 10 for a VERY Bullish outlook.

Everyone’s favorite tobacco stock Altria Group (MO) is always a stable stock.  Altria has a low beta of 0.27.  Altria’s Board of Directors in August approved a 7.3% increase to their quarterly dividend.  Altria has a current dividend yield of 5.25%.  Altria has an equity summary score of 7.9 out of 10 for a Bullish outlook.

Low Beta Dividend Stocks for an Uncertain Market

As the markets continue to show uncertainty and a lack of capitulation, investors are looking for a place to hunker down.  The best place at this time is in low beta stocks with dividend yields (defensive stocks) to support the share price.  I had identified 5 stocks that are up in price the last 4 weeks and have a bullish outlook for when the market rallies.  Here are 5 stocks to consider:

Tobacco operator Altria Group (MO) seems to do well in these types of markets.  It is up 4.9% over the last 4 weeks.  It has a low beta of 0.25 with a dividend yield of 4.91%.  MO has an equity summary score of 7.4 out of 10 for a Bullish outlook.

Low cost retailer Wal-Mart (WMT) shines when there is a slow economy.  WMT is up 14% in the last 4 weeks.  It has a beta of 0.33 and a dividend yield of 2.35%.  WMT has an equity summary score of 8.4 out of 10 for a Bullish outlook.

Telecom giant AT&T (T) is a steady as they go in this type of market.  AT&T is up 5.4% in the last 4 weeks.  It has a beta of 0.57 and a dividend yield of 5.03%.  AT&T has an equity summary score of 9.8 out of 10 for a VERY Bullish outlook.

Retailer Target Corp (TGT) has been performing great this year.  TGT is up 5.13% in the last 4 weeks.  It has a beta of 0.58 with a dividend yield of 2.06%. TGT just announced a 20% increase in its dividend.  TGT has an equity summary score of 9.2 out of 10 for a VERY Bullish outlook.

Pharmaceutical giant Bristol-Myers Squibb (BMY) is a solid dividend stock.  BMY is up 3.73% in the past month.  It has a beta of 0.41 with a dividend yield of 3.97%.  BMY has an equity summary score of 9.1 out of 10 for a VERY Bullish outlook.

Building a High Dividend Yield, Low Beta Income Portfolio (Part 3)

For income investors wanting to go it alone, they should consider creating a portfolio of high dividend stocks with low beta.  This type of portfolio will provide a risk to reward profile during times of uncertainty in the markets.  By adding the component of a bullish outlook to the low beta stocks indicates these stocks can be held in a long-term portfolio.  The high dividend yield can be compounded over time and will increase as these stocks raise their dividends each year.  This portfolio will be built in a series of articles.  You can read Part 1 here and Part 2 here.  Below is Part 3 with more stocks to look at for adding your portfolio.

Philip Morris International Inc. (PM) manufactures and sells cigarettes and other tobacco products.  Separated from operations in the U.S. and the
regulatory and litigation risk of that market, PM will, in our view, be better positioned to innovate, tailor offerings to higher-growth emerging markets,
achieve cost savings, and incentivize managers.  We think PM’s low penetration of markets with potentially high cigarette consumption, such as China, India and Vietnam, also provides attractive opportunities.  Also, the spinoff provided PM with currency for acquisitions.  We believe its high cash flow generation is
supportive of regular stock repurchases and its dividend, which recently yielded 3.5%.  PM increased its dividend 20% in the last year.  PM has a 3-year beta
of 0.61.  PM has an equity summary score of 9.7 out of 10 for a VERY Bullish outlook.

Pfizer Inc. (PFE), a biopharmaceutical company, engages in the discovery, development, manufacture, and sale of medicines for people and animals worldwide.  The world’s largest pharmaceutical company, Pfizer produces a wide range of drugs across a broad therapeutic spectrum.  In October 2009, PFE acquired rival drugmaker Wyeth for some $68 billion in cash and stock.  Although we expect the loss of U.S. patent protection on Lipitor and negative foreign
exchange to result in lower earnings this year, we think the decline should be cushioned by strength in several key pharmaceutical lines, growth in emerging
markets, cost restructurings and common share buybacks.  The company recently announced a $10 billion buyback, of which $5 billion is expected to be purchased in 2012.  We are also encouraged by PFE’s pipeline, which comprises potential breakthough treatments for arthritis, heart disease and other conditions, as well as by the planned spinoff to shareholders of non-core businesses.  PFE has a dividend yield of 4.03% and a 3-year beta of 0.75.  PFE increased its dividend 10% in Q1 2012.  PFE has an equity summary score of 7.4 out of 10 for a Bullish outlook.

Johnson & Johnson (JNJ) engages in the research, development, manufacture, and sale of various products in the health care field worldwide.  We believe
JNJ’s diversified sales base across drugs, medical devices and consumer products, along with its decentralized business model, has served it well in the past and should continue to do so in the years ahead.  In our view, JNJ’s pharma segment should benefit from a number of key new products, including Xarelto blood thinner, Incivek treatment for hepatitis C, Zytiga for prostate cancer, and Edurant for HIV.  In late April 2011, JNJ agreed to acquire Synthes for $21.3 billion in cash and stock.  We see significant operating synergies accruing from the proposed Synthes combination, which is expected to be completed in the
first half of 2012. JNJ has a dividend yield of 3.59% and a 3-year beta of 0.49.  JNJ has a 5-year average dividend growth rate of 8.23%.  JNJ has an equity summary score of 8.2 out of 10 for a Bullish outlook.

Building a High Dividend Yield, Low Beta Income Portfolio (Part 1)

For income investors wanting to go it alone, they should consider creating a portfolio of high dividend stocks with low beta.  This type of portfolio will provide a risk to reward profile during times of uncertainty in the markets.  By adding the component of a bullish outlook to the low beta stocks indicates these stocks can be held in a long-term portfolio.  The high dividend yield can be compounded over time and will increase as these stocks raise their dividends each year.  This portfolio will be built in a series of articles.  Here are the first stocks to look at for your portfolio.

AT&T Inc. (T) provides telecommunications services to consumers, businesses, and other providers worldwide.   We see gains in consumer wireless and broadband continuing to offset some wireline voice pressure.  We believe T’s strong balance sheet, expected wide operating margins in 2012 and its review of rural assets are positives. While we think that failure to complete its planned acquisition of T-Mobile USA assets represents a setback, we believe T will move forward and has sufficient spectrum and liquidity to grow. We view T’s above-average dividend as secure and adding to total return potential, though with a rise in the shares in 2012.  T has a dividend yield of 5.69% and a 3-year beta of 0.58.  T has an equity summary score of 9.2 out of 10 for a VERY Bullish outlook.  The First Call Consensus of 37 analysts is a Buy rating.

Altria Group, Inc. (MO) engages in the manufacture and sale of cigarettes, smokeless products, and wine in the United States and internationally.  Although we continue to expect domestic cigarette industry volumes to contract over the long term, we see cigarette companies still having the ability to raise prices,
and thus margins.  As the largest U.S. cigarette manufacturer, MO should lead this pricing strategy, in our view.  Moreover, we look for more limited commodity input cost pressures than in other industries in the consumer staples sector.  Operationally, we think Altria is likely to benefit from several factors over the next several years, including the growth from higher-margin smokeless tobacco products and various restructuring actions.  MO has a dividend yield of 5.23% and a 3-year beta of 0.44.  MO has an equity summary score of 7.6 out of 10 for a Bullish outlook.  The First Call Consensus of 14 analysts is a
Buy rating.

Verizon Communications Inc. (VZ) provides communications, information, and entertainment products and services to consumers, businesses, and governmental agencies worldwide.  VZ is a large, steady high yield dividend stock.  It boasts a dividend yield of 5.3% and a 3-year beta of 0.54.  VZ has a
strong operating margin and perception of network quality, the company’s wireless segment should be a driver for VZ in 2012, even as we see higher
subsidies for smartphones launched on 3G and 4G networks.  We are encouraged by the relative stability in VZ’s wireline segment over the past six months, helped by FiOS gains and by the company’s above-average dividend. We believe VZ’s pending acquisition of spectrum from a cable consortium will help alleviate future network congestion. VZ has an equity summary score of 8.9 out of 10 for a Bullish outlook.  The First Call Consensus of 39 analysts is a
Buy rating.

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