Bear-Proof Picks: Dividend Aristocrats

10/03/2014 9:00 am EST

Focus: MARKETS

Richard Stavros

Analyst, Global Income Edge, Utility Forecaster and Personal Finance

We believe that income investors should move their portfolios from riskier investments into more stable, traditional holdings to better weather a market storm, explains Richard Stavros in Personal Finance.

Think of this as bear-proofing a portfolio. We are adding positions in two firms in steady industries that have 5%+ yields and long histories of paying dividends.

Both have a solid pedigree-they're among Standard & Poor's 500 Dividend Aristocrats, a group of companies that have increased their dividend payouts for at least 25 consecutive years.

Healthcare Property Investors (HCP)
HCP is a REIT that manages healthcare real estate, as well as makes loans and provides financing to healthcare providers. It's well-diversified in senior housing, life science, medical office, hospital, and skilled nursing.

HCP has increased its dividend per share for 29 consecutive years and is the only REIT on the S&P 500 Dividend Aristocrats list.

Although it has a presence in most states, the California-based REIT is heavily invested in California, Texas, and Florida. It generates $1.7 billion in annual net operating income and interest income, which offers a cash cushion for paying a steady dividend.

Growth has been steady. The company says that it has generated an annual shareholder return (capital gains plus dividends) of 15.5% since went public in 1985.

AT&T (T)
AT&T is at the center of the digital transformation of the home, and the Internet of Things-the connection of a variety of small devices to the Internet-such as heart monitoring implants, smart thermostats, and washer-dryers that use Wi-Fi for remote monitoring.

AT&T launched its home automation and security product, Digital Life, in 2013. It uses Wi-Fi and broadband so that customers can monitor home security from anywhere.

AT&T Drive is a connected car platform that will allow car makers to develop their own "customized connected car solutions."

Meanwhile, AT&T has also launched an alliance with IBM (IBM) to advise businesses and cities on how they can make their assets more interconnected (cameras, utility meters, mass transit) to become more efficient.

Though it hasn't provided numbers, management expects the new Digital Life business and automobile alliances to be big boosts to sales growth, as connectivity means an opportunity to sell its broadband services.

AT&T has increased its dividend 25 years in a row. Over the last five years, it has increased its dividend by an average of 2.3% each year. Its most recent increase was by 2.2%.

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