9 High-Quality Dividend Stocks for Volatile Times From Merrill Lynch

Investing

Published: February 10, 2016 12:05 pm

Last Updated: January 13, 2020 1:21 pm

When the stock market becomes uncertain, investors often tend to flock toward defensive stocks or stocks that have very high-quality earnings. That generally means that their dividends are deemed safe as well. It turns out that Merrill Lynch’s February RIC report has a focus on high-quality stocks to outperform low quality because they tend to outperform in volatile markets.

The RIC report featured a screen for companies with a high return on equity (ROE). Merrill Lynch’s Matthew Trapp and Savita Subramanian believe that volatility will remain. After all, a slowing growth story is being doubled by uncertainty about Federal Reserve rate increases and commodity price weakness. They also pointed out that high-quality stocks also have more attractive valuations for being cash-rich large cap stocks with dividend growth potential.

February’s RIC report does admit that recession risks are rising in the quantitative analysis but are so far contained. Late-cycle excesses that would be typical warning signals of an impending downturn are not present, and growth elsewhere has remained robust despite weakening industrial sector data.

Subramanian’s preferred measure of quality is low earnings dispersion. These have lower earnings risk and high returns on equity. She screened for S&P 500 stocks that have an S&P Quality rank of A- or better and that have a return on equity above the S&P 500 average — and then of course that have a Buy rating at Merrill Lynch, which generated some 39 stocks.