Investing

Investors Flocking To Defensive Shares With High Dividends (PEP, KO, BUD, TAP, AWK, AEP, XLU, MCD, KFT, CAG, CPB, HRL, MO, VGR, RAI, PG, KMB, CL, MRK, PFE, JNJ, T, VZ)

The 10-year Treasury hit yet another record low under 1.6% today and stocks are in the tank again due to poor economic data.  Europe continues to face a meltdown and the hope is for a rate cut out of the European Central Bank.  BRIC growth is slowing to even worse levels now and commodity prices are tanking.  To make matters worse, speculative bond spreads (junk bonds) have widened out to almost 700 basis points.

In a world of no returns, investors are hiding in defensive stocks.  That means telecom, tobacco, food, utilities, drugs, and consumer products… and those which offer high dividends. The DJIA is down 0.5%, the S&P 500 Index is down 0.8%, and the NASDAQ is down 1%.

You gotta drink… but the beverage players are down.  Perhaps Mayor Bloomberg’s ambition of killing soda drinks above 16-ounce servings has something to do with it.  Pepsico, Inc. (NYSE: PEP) is down 0.7% at $67.77 against a 52-week high of $70.75; Coca-Cola Company (NYSE: KO) is down 0.2% at $74.92 against a 52-week high of $77.82.  With yields of about 3% on average, these are now offering better yields than the 30-Year Treasury.  The beer segment is not acting defensive as it should, perhaps because they are foreign issues now with more currency risks: Anheuser-Busch InBev SA (NYSE: BUD) and Molson Coors Brewing Company (NYSE: TAP) are down 0.6% and 1.2% respectively.

Utilities aren’t going to die… Water is about as defensive as you can get and American Water Works Company, Inc. (NYSE: AWK) is actually up by two-cents to $34.01 against a 52-week and all-time high of $34.89. American Electric Power Co., Inc. (NYSE: AEP) is up 0.2% at $38.29 with its 4.9% yield and the utility ETF of Utilities Select Sector SPDR (AMEX: XLU) is flat at $35.67.

Food is supposed to be defensive because you can’t go too long without eating.  McDonald’s Corporation (NYSE: MCD) is up a penny at $89.41 against a 52-week and all-time high of $102.22.  The rest of the defensive food segment is down but by less than any of the major indexes: Kraft Foods Inc. (NYSE: KFT) is down by -0.2%; ConAgra Foods, Inc. (NYSE: CAG) is down by -0.3%; Campbell Soup Co. (NYSE: CPB) is down by -0.3%; and Hormel Foods Corporation (NYSE: HRL) is down by only -0.2%.

The dividends are extremely high in tobacco, and stress is probably going to put off that decision to quit smoking.  That suit victory for Big Tobacco over “lights” in Minnesota is only leaving that much more room for dividend growth with those 5% and higher dividends: Altria Group Inc. (NYSE: MO) is up $0.04 at $32.05 against a 52-week high of $32.62; Vector Group Ltd. (NYSE: VGR) is down only $0.01 at $16.50 against a 52-week high of $19.28; and Reynolds American Inc. (NYSE: RAI) is down 0.3% at $41.80 against a high of $42.81.

Shaving, diapers, toilet paper, and other consumer products are acting defensive with some gains on a weak day.  Procter & Gamble Co. (NYSE: PG) is down 0.4% at $62.05 and Kimberly-Clark Corporation (NYSE: KMB) is down by only $0.03 at 79.22 against a 52-week high of $80.00.  Colgate-Palmolive Co. (NYSE: CL) is not acting so defensive with its drop being down 0.45% at $98.39 against a 52-week high of $101.94.

Drug stocks are mixed with Merck & Co. Inc. (NYSE: MRK) down 0.15% at $37.35 and Pfizer Inc. (NYSE: PFE) is down 0.4% at $21.95; Johnson & Johnson (NYSE: JNJ) is showing to be the most defensive today with a gain… shares are up 0.2% at $62.33 against a 52-week high of $68.05.

Those smartphones and telephones are proving to be somewhat defensive with those 5% yields:  Verizon Communications Inc. (NYSE: VZ) is down by 0.4% at $41.25 against a 52-week high of $41.96. AT&T, Inc. (NYSE: T) is up a sharp 0.6% at $34.04 and shares hit a 52-week high of $34.11 today.

The 10-year Treasury now yields only 1.57%, and only 4 of the 30 DJIA components have a lower yield than the 10-year at this point.

JON C. OGG