(09/06/12) 4 Dividend Champs for a Falling Market

The staff of Kapitall.com have screened for stocks that have strong dividends and could continue to rise in value even if the overall market softens.

If you're hesitant about the recent market rally, or perhaps believe in the September stock market dropoff, you're probably on the lookout for stocks to hedge a financial storm. Are you also looking for dividend stocks? Boy have we got a list for you:

First, consider the VIX index. The VIX indexes the volatility of all of the stocks in the S&P 500. That means if the S&P 500 is highly volatile, the VIX index climbs.

We ran a screen to see which stocks perform well in times of high volatility, with a high positive correlation to the VIX index. That means if the S&P 500 is highly volatile, the VIX index climbs, and these correlated stocks tend to climb with it. Put another way, the stocks below tend to rise (increase in share value) along with volatility.

Now for the dividends: While many stocks offer dividend yields, they don't all have a stellar history of paying them out through good times and bad. So to find the more reliable payers, we turned to the DRiP Investing Resource Center list of "Dividend Champions"—stocks that have consecutively paid and raised yields for 20-plus years. This consistency boosts investor confidence in future payments.

We were left with four stocks. As a recap, these dividend champions are positively correlated to volatility, and may help investors hedge a dropoff in the market.

1. Archer Daniels Midland (ADM) procures, transports, stores, processes, and merchandises agricultural commodities and products in the United States and internationally. This company has been raising dividends for 36 consecutive years to a current yield of 2.68%. Correlation with the VIX index is at 0.807 over the last 60 days.

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2. Family Dollar Stores (FDO) operates a chain of self-service retail discount stores primarily for low- and middle-income consumers in the United States. The company has been raising dividends for 36 consecutive years to a current yield of 1.27%. Correlation with the VIX index is at 0.501 over the last 60 days.

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Next: Mercury General

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3. Mercury General (MCY) engages in writing private passenger and commercial automobile insurance in the United States. The company has been raising dividends for 25 consecutive years to a current yield of 6.73%. Correlation with the VIX index is at 0.692 over the last 60 days.

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4. Mine Safety Appliances (MSA) develops, manufactures, and supplies health and safety products used by workers in the fire service, homeland security, construction, and other industries, as well as the military. The company has been raising dividends for 41 consecutive years to a current yield of 3.26%. Correlation with the VIX index is at 0.52 over the last 60 days.

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