Companies that pay among the highest dividends and post the fastest earnings growth are the best place to hunker down.
Before selling equities and going to cash or Treasury bonds, consider staying in the market but remaining risk-averse with relatively safe dividend stocks. Still, that might be easier said than done, given the S&P 500's horrible performance last week.
But that's a strategy touted by many investment strategists, including Morgan Stanley analyst Adam Parker. "The right strategy to outperform in this environment is to focus on companies with sustainable dividends," which he refers to as "the 'best house on a bad block' logic."
With the 10-year Treasury yield around 2 per cent yield, companies that can increase earnings per share over the next decade and pay consistently higher dividends are "likely prudent investments," he says.
Dividends have provided 42 per cent of the S&P 500's total return over the past century, "so you do not want to ignore them," Parker says. Instead of picking stable blue-chip companies such as 3M or Procter & Gamble, Morgan Stanley recommends fast-growing companies.
"The market has been rewarding companies that are beating on revenue more than those beating on earnings, and we think the scarcity premium on revenue growth will increase in a low-growth economy," he said in the report the report.
With that view in mind, what follows are 10 stocks with better than 3 per cent dividend yields that rank among the best in terms of three- to five-year earnings per share growth prospects (per Standard & Poor's), and have attractive current price-to-earnings ratios, culled from a screen on Fidelity's Web site.
Seagate Technology , a maker of computer hard drives, has shares that carry a 4.46 per cent projected dividend yield, and the company has a long-term projected earnings growth rate of 18.4 per cent. It has a market value of $7-billion and its shares are on fire, rising 62 per cent in the past three months and up 11 per cent this year.
Nucor is the largest U.S. steel manufacturer by production and boasts among the most modern and efficient mills. Shares of this $12-billion market value firm are up 20 per cent in the past three months and 2.4 per cent on the year and carry a projected yield of 3.87 per cent. Nucor has a long-term projected earnings per share growth rate of 39 per cent.
Kronos Worldwide's shares carry a yield of 3.09 per cent, and the company has a market value of $2-billion. The shares are down 4 per cent this year but over three years, they have appreciated at a rate of 70 per cent per year. Kronos is a chemical company that primarily makes titanium dioxide found in paint and plastics and used in paper manufacturing. It has a long-term projected annual earnings growth rate of 20.5 per cent.
Eagle Rock Energy Partners , a unit trust fund, carries an 8.2 per cent projected yield. Its stock has grown 19 per cent this year and an average of 21 per cent over three years. The company is a partnership that invests in oil and natural gas pipelines as well as in oil and gas wells. Eagle Rock Energy Partners has a projected long-term earnings growth rate outlook of 20 per cent.
Steel Dynamics , a manufacturer of cheap types of steel by using scrap metal, has shares that carry a projected dividend yield of 3.3 per cent. The company has a long-term earnings outlook of 21 per cent annually. This $3-billion market value company has seen its shares melt 32 per cent this year, but over three years they have gained an average of 30 per cent annually. Steel Dynamics has a long-term projected earnings growth rate of 21 per cent.
Olin Corp. , with a 4.27 per cent projected dividend yield, is a manufacturer of chlorine and caustic soda, among other chemicals. With a $1.5-billion market value, its shares have fallen 4.8 per cent this year, but have an annual average gain of 14.5 per cent over three years. Its earnings growth rate is projected be 17.5 per cent annually, long term.
CTC Media carries a 9.45 per cent projected yield, and a long-term earnings growth rate projection of 33 per cent. Its shares have lost 58 per cent this year, but over three years have an average annual gain of 49 per cent. The company is one of the leading satellite-TV broadcasters in Russia, with 350 affiliate stations and about 100 million viewers.
Southern Copper's shares carry an 8.49 per cent projected dividend yield and the company has a projected annual growth rate of 15 per cent on earnings. It is a pure commodities play, as one of the world's largest copper producers. Southern Copper's shares are down 36 per cent this year, but over three years have an average annual gain of 46 per cent.
Shares of ArcelorMittal , the world's largest steel producer, carry a 4.5 per cent projected dividend yield, and the company has a projected annual earnings growth rate of 22 per cent. ArcelorMittal's stock is down 52 per cent this year, but over 10 years has an average annual return of 30 per cent.
Westway Group is a provider of bulk liquid storage services and a manufacturer and distributor of liquid animal feed supplements. Its shares are up 14.5 per cent this year, but have lost an average of 8.5 per cent annually over three years. But the small-cap $114-million company's shares have a 3.77 per cent projected yield, and Westway has a long-term, projected annual earnings growth rate of 10 per cent.