Thursday, October 6, 2011

Consumer Stocks: Safety In A Volatile Market

As an investor, my primary objective is to preserve capital and then grow it. One of the best ways to preserve capital is to invest in defensive stocks that have less overall volatility than the general markets. These stocks usually aren't your fast growth stocks with huge catalysts behind them, but offer a sense of safety and stability...especially when there is so much uncertainty around us.

Today I want to present two consumer dividend growth stocks that have shown a lot of safety and have far outperformed the overall market.

The Coca-Cola Company (KO)

Coca-Cola is the world's largest manufacturer, distributor, and marketer of nonalcoholic beverage concentrates and syrups. The firm also sells a variety of noncarbonated drinks such as water, juices, and teas. With almost three fourths of the company's revenue generated outside the United States, Coke's footprint extends throughout the world. Coke's core brands include Coca-Cola, Sprite, Dasani, Powerade, and Minute Maid.

This stock is currently yielding 2.87%, which offers current income while you wait out the rise in the markets. That yield comes with 49 straight years of dividend growth as well. Coca-Cola offers an investor the strength and safety of one of the world's best known brands. This is a great business and Mr. Market seems to have priced that in. The S&P is down just over 9% on the year, while KO is only down 0.36%. This stock has far outperformed the S&P 500. This company offers great preservation of capital. As Warren Buffet said: "Rule No. 1: Don't lose money. Rule No. 2: Don't forget rule no. 1.". It has a debt/equity ratio of 0.3.

McDonald's Corporation (MCD)

McDonald's generates revenue through company-owned restaurants, franchise royalties, and licensing pacts. Restaurants offer a uniform value-priced menu, with some regional variations. As of March 2011, there were 32,800 locations in 117 countries, including 26,400 operated by franchisees/affiliates and 6,400 company units.

This stock is currently yielding 3.26%, which is actually quite solid for such a safe large-cap company. This kind of yield offers a floor for the stock's price. This business is absolute solid. When you invest with McDonald's you're getting a piece of the profits from one of the best known brands in the world. It has a fair amount of debt with a debt/equity ratio of  0.7, but this is actually much lower than a lot of other companies in its industry. It has 35 years of dividend growth behind it, and there is no reason to believe this is going to abate anytime soon. MCD has risen 11.8% YTD, vs. the S&P 500 at a 9% loss for the year. This stock has greatly outperformed the market.

Full Disclosure: I'm long KO and MCD.

Thanks for reading.
 

This article was written by Dividend Mantra. If you enjoyed this article, please consider subscribing to my feed.

2 comments:

  1. Find out where millions of consumers go for their food and beverage sources and you should be able to find some reliable cash flows!

    I'm with you on both picks DM. If I wasn't so overweight in KO right now I'd happily snap it up with the yield so close to 3%.

    ReplyDelete
  2. DFTLR,

    I'm looking closely at KO. It's shown some minor weakness in the recent market downdraft and I like it under $65. It's on my list!

    So many equities, so little cash!

    ReplyDelete

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