Tuesday, May 12, 2009

* High-Quality Low-Risk Dividend Stocks

To a large extent we are a product of our environment. Our life experiences not only shape out behavior, but at its very core, they shape our thought process. The Great Depression forever changed a generation of people. It appears the "Great Recession" may be having a similar effect on another generation.

In a May 5th MSN Money article, Kathy Kristof explores what effect the financial crisis is having on Generation Y (those born between 1977 to 1994). It seems that this generation that lives life on the edge in most of their pursuits, are quite risk-averse when it comes to selecting their investments. That could be a decision that results in them coming up short in retirement. Here are some other interesting items from the article:
  • 20- and 30-somethings put their retirement money in bank accounts, Treasurys or gold to simply "preserve" their savings.
  • Only about half of all workers have access to a 401(k) plan, and only about 40% of the 20-somethings who are offered a 401(k) even participate
  • if you had a diversified portfolio made up of 70% stocks and 30% bonds -- about right for someone in their late 20s -- you could reasonably expect to earn an average of 8.9% on your money over time
  • Between 1929 and 1932, stocks lost roughly 85% of their value. But, in 1933, prices roared back, soaring nearly 54%.
  • stocks gained an average of 18.2% annually during the 1990s (about double the historic average)
There are much better alternatives for the ultra-conservative Gen Y investors than money market accounts, Treasuries and CDs. A conservative strategy focusing on high quality, low risk dividend stocks should significantly out-perform the above investments, with very little incremental long-term risk. Based on my risk rating, here are five low risk companies for conservative investors to consider:

1. The Coca-Cola Company (KO) - Risk Rating: 1.25 - Yield: 3.82% (analysis)
2. Johnson & Johnson (JNJ) - Risk Rating: 1.25 - Yield: 3.62% (analysis)
3. The Clorox Company (CLX) - Risk Rating: 1.25 - Yield: 3.45% (analysis)
4. United Technologies Corporation (UTX) - Risk Rating: 1.00 - Yield: 2.97% (analysis)
5. SYSCO Corporation (SYY) - Risk Rating: 1.00 - Yield: 4.06 (analysis)

What the Gen Y investors haven't realized is that the path they are following carries risk also. Ironically, they may have chosen the most dangerous investment of all.

Full Disclosure: Long KO, JNJ, CLX, UTX, SYY (my income holdings)

Tags: [CLX] [JNJ] [KO] [SYY] [UTX]