Many investors believe that financial markets react to the news. But it’s a bit more nuanced than that.
Many investors believe that financial markets react to the news. But it’s a bit more nuanced than that. Asset prices move with respect to their expectation of the news, versus the actual events that play out. It’s a cliché, but true: Markets don’t like uncertainty. As I write, it appears that we will (eventually) have a clear winner to the 2020 election. Social unrest also appears to be less than feared. Plus, the likelihood of Congressional gridlock increases the chances that taxes will not rise. All-in-all, a “slam dunk” for Mr. and Ms. Market, who went to bed Tuesday night fearing worse. We’re going to continue to ride this dividend wave. However, I’m not convinced that we are out of the volatility woods yet. We have been dealing with increasingly choppy waters over the past few months. Volatility is high, and it’s actually worse than it seems. That’s because we’ve been numbed by what happened in February and March, when we suffered the stock market’s quickest bear-market plunge of all time. By comparison, the present moment feels downright docile! But if we look back even 20 years, we see how insane the entirety of 2020 has been. It’s been rockier than 2000,2008, and it hasn’t exactly “settled down” much, either. And let’s not kid ourselves. We should be ready for the prospect of renewed volatility if our dysfunctional political process encounters a hiccup. The solution? Big, secure dividends, of course. A Hartford Funds study examining Ned Davis Research data found that “companies that grew or initiated a dividend have experienced the highest returns relative to other stocks since 1972—with significantly less volatility.” The data is convincing, and it runs in a straight line. The healthier the dividend program, the better they performed, and the calmer their action was: So let’s go find some peace of mind. The following are five of the safest dividend payers on the planet, according to the savvy dividend data collectors behind the DIVCON payout-health rating system. But not only do their financials indicate a high likelihood of dividend increases going forward—they also boast lower-than-average betas, which means these stocks are steadier than the broader market. (A true “nice to have” during dumpster fire years like this one!) Booz Allen Hamilton (BAH) Dividend Yield: 1.6% 5-Year Beta: 0.8 Booz Allen Hamilton (BAH), a management and IT tech consulting firm whose name is seemingly plastered on at least one building in every section of the D.C. metro area, is a generous dividend raiser that I featured a little less than a year ago. Since then, shares have bounced nearly 24% versus just 10% for the S&P 500! So, what’s shaking more recently? Booz Allen reported record backlog in its fiscal second quarter, as well as an 11% bump in organic growth, which was faster than the 7% rate it grew by in Q1. EBITDA margins widened from 10.5% to 11.3%. And something pertinent to the moment: “Booz Allen is not concerned about a change in presidential leadership,” according to William Blair’s equity research team, believing business will be good for AI, cybersecurity and space defense—all areas Booz Allen excels in. Meanwhile, DIVCON gives Booz Allen its highest rating, citing more than double the free cash flow it needs to cover its dividend, as well as strong EPS growth trends and a number of other encouraging payout-related metrics.
