Low-Risk Dividend Trio

01/27/2015 8:00 am EST


Chloe Jensen

Chief Analyst, Cabot Dividend Investor

The Safe Income tier of our model portfolio holds long-term positions in high quality stocks and other investments that generate steady income with minimal volatility and low risk, explains yield expert Chloe Lutts Jensen, editor of Cabot Dividend Investor.

These positions are appropriate for all investors, but are meant to be held for the long-term, primarily for income; don’t buy these thinking you’ll double your money in a year.

Aflac (AFL)

I am putting Aflac back on a Buy rating. The insurer is still facing significant challenges—lower sales and the yen’s weakness—but the stock is starting to show impressive strength.

Some investors may be attracted by the stock’s valuation, while others may be anticipating stronger growth down the line; we always say that the market looks six to nine months ahead.

Whatever the reason, the strength is enough reason for me to change my rating today. Aflac is a Buy here for investors looking for safe income and long-term capital appreciation.

Consolidated Edison (ED)

Utility stocks have roared ahead, thanks to falling fuel prices and the Fed’s promise to be patient about raising interest rates.

ED could probably stand to do some cooling off in early 2015, but I’ll keep it on Buy for long-term investors. The utility is a reliable dividend payer that delivers consistent moderate earnings growth.

Management recently raised its earnings guidance for 2014, citing improved operational efficiency. And interest rates are likely to remain supportive for some time. ED is a Buy for long-term investors looking for safe income with moderate upside.

PowerShares Preferred Portfolio (PGX)

This preferred shares ETF plunged with other interest rate-sensitive investments ahead of the Fed’s December meeting. However, assurances that they will be patient in raising rates assuaged investors’ concerns.

PGX may see more gyrations as investors anticipate a mid-2015 interest rate increase, but since we’re not looking for upside here, PGX is still a decent buy for income.

PGX is appropriate for investors who want monthly income, without upside potential. Note that the dividend payments are only partially qualified for the lower dividend tax rate and the fund has an expense ratio of 0.50%.

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