What are we looking for?
U.S. consumer stocks that have strong fundamentals and below-average volatility.
Instability in the U.S. market has been running high since the end of August with stock indexes swinging wildly on almost a daily basis. Many investors find this volatility unnerving and desire stocks with less volatile trading characteristics. With some sectors of the market already trading down more than 10 per cent from their 52-week highs, investments in defensive sectors such as utilities and consumer goods are sought after.
The screen
We will be using Recognia Strategy Builder in our search of consumer stocks. We begin by setting a minimum market capitalization threshold of $5-billion (U.S.) to focus on larger, more established companies in the sector.
Next, we will look for companies that have a dividend of at least 2 per cent so that we are paid while we wait for our investments to appreciate. We will also select companies that have healthy businesses as demonstrated by their ability to raise dividend payments in the past year by 4 per cent or more.
Finally, in order to focus on stocks that demonstrate low volatility, we will screen for stocks with a beta of between zero and 0.75. Beta is a measure of stock price volatility. A beta in this range means that the stock has 75 per cent or less of the volatility of the overall market.
More about Recognia
Recognia is a global leader in automated quantitative analysis and engagement solutions for retail online brokers and institutions. Recognia's product suite provides actionable trading ideas based on technical and fundamental research covering stocks, ETFs, indexes, forex, options and commodities.
What did we find?
Atlanta-based Coca-Cola is a classic value stock with a strong dividend and stable earnings. Coke has a current dividend yield of 3.3 per cent and has raised the dividend by 8.9 per cent in the past 12 months.
Procter & Gamble is the largest company on our list with a market cap exceeding $196-billion. P&G is known as a "dividend aristocrat," meaning that it has increased its dividend every year for the past 25 years. The company currently has a dividend yield of 3.7 per cent and a low beta of 0.62.
Kraft Heinz Co. has the lowest beta on our list at just 0.33. This company was formed in the 2015 merger of Kraft Foods and Heinz. The company is now the fifth-largest food and beverage company in the world. It currently has a 3.1 per cent dividend yield and a 12-month dividend growth rate of 4.9 per cent.
Historical performance
Recognia Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described had a 13.7 per cent annualized return compared to 8.5 per cent for the Dow Jones industrial average and 11 per cent for the S&P 500.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.
Peter Ashton is vice-president of retail and self-directed investing at Recognia Inc.