Investors Can Have it All

DSC_0065 (Photo credit: Bruce A Stockwell)

One of the first equations that investors learn is the risk/reward ratio.  An asset that entails a higher risk will offer a higher reward: junk bonds have higher interest rates than United States Treasury bonds, as an example.  But that has been proven not to be true for all stocks according to the article “How to Pick Stocks without Getting Burned,” by Carolyn Bigda and Susie Poppick, in the June 2012 issue of Moneymagazine.  The piece reported on research from Dr. Robert Haugen of Haugen Financial Systems that “…found that between 1990 and 2011, the steadiest U.S. shares produced the highest returns while the most volatile domestic shares lost value.”

This only makes sense.  Dividend paying stocks that perform well such as Waste Management (NYSE: WM), SAIC, INC (NYSE: SAI) and Altria Group (NYSE: MO) will be less volatile for the simple reason there is little reason for an investor, whether an individual or an institution, to sell the shares.  The dividend incomes alone should keep investors holding the stocks for long term gains, particularly in today’s low interest rate environment combined with weak total returns.

The average stock on the Standard & Poor’s 500 Index pays a dividend of around 2%. Altria Group, which manufactures and sells cigarettes and wine, provides its shareholders with a dividend income at the rate of 4.69%.  The beta of Altria Group is very low at just 0.40, less than half of the 1 for the stock market as a whole.  Contributing to the low beta is the high level of institutional ownership at almost 60%.  Institutional investors such as mutual funds and pension groups generally buy for the long term, which reduces the volatility of their holdings.  It is a bullish indicator when an institutional investor buys as these firms have deep research resources and are highly sought after by publicly traded companies and other entities.  ... Continue to read.

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