Investors may need to position portfolios for a longer period of market volatility
Which defensive dividend stocks offer stability in the current turmoil?
After strong optimism earlier this week, stock market sentiment has turned cautious again. Oil prices had recorded their biggest daily drop ever on March 9, falling about 32% from their high to their low that day.
Part of that earlier decline came after Donald Trump said the conflict with Iran would end quickly. That statement helped push oil prices lower on Monday.
However, as the conflict continues, markets are beginning to doubt that a quick resolution will happen.
As a result, oil prices have risen sharply again. , which fell to $76.73 per barrel on Tuesday, climbed to more than $95 by Friday morning, a gain of about 24.5%. also moved higher and reached the important $100 level.
Recent developments in the conflict have added to concerns in energy markets.
Media reports said two international oil tankers were attacked in the northern Persian Gulf, near Iraq and Kuwait. Bloomberg also reported that Oman evacuated all ships from a key oil terminal in Mina Al Fahal as a precaution after several attacks on vessels in the region.
China also took steps to protect its domestic fuel supply. The country banned exports of refined fuel in March to avoid a possible shortage if the conflict with Iran disrupts energy flows.
These developments suggest that the disruptions linked to the conflict with Iran are spreading beyond the Strait of Hormuz. The war entered its thirteenth day on Thursday, adding to global market concerns.
Against this backdrop, US stock indices, which closed flat on Wednesday, are expected to open sharply lower on Thursday. Investors may need to prepare for a period of volatility that could last longer than initially expected.
During times of market uncertainty, it often helps to focus on more defensive investment strategies. One common approach is to give more weight to dividend-paying stocks. These companies provide regular income regardless of short-term market moves and can offer greater stability during periods of turmoil.
First, companies that pay dividends are usually profitable. Dividends come from a company’s profits and are shared with shareholders. Many of these companies operate in defensive sectors.
Their investors also tend to think long term. Because of that, dividend stocks are often less affected by short-term market panic.
Even so, investors still need to choose dividend stocks carefully.
How to Choose the Right Dividend Stocks
Many investors focus mainly on dividend yield. This metric shows how much income a stock pays each year compared with its share price. For example, if you invest $100 in a stock with a 5% dividend yield, you would receive about $5 in dividends each year.
Dividend yield is therefore an important metric. However, it should never be the only factor investors consider. Other elements also matter when evaluating dividend stocks, including:
The number of years the company has paid dividends. Companies with a long history of dividend payments are less likely to stop.
Dividend growth over the past three and five years. This helps show whether the company regularly increases its dividend payments over time.
The payout ratio shows the share of profits that a company pays out as dividends. A higher ratio means the company has less room to increase future dividend payments.
Finally, investors should also avoid dividend stocks that look overvalued, since they carry a higher risk of a price decline.
To apply these principles, we used the Investing.com stock screener and ran the following search for companies listed in the US market.
Market capitalization greater than $500 million.
Dividend yield greater than 5%.
Dividends have been paid for more than 10 years.
Dividends increasing over 3 and 5 years.
Payout ratio below 70%.
Upside potential of more than 20% according to InvestingPro Fair Value (summary of valuation models).
This research has enabled us to identify 9 opportunities:
Note: The dividend yield on these stocks ranges from 5% to 10.8%, and some of them have been paying dividends for more than five decades. They are also currently undervalued by 24.8% to 53.3% based on InvestingPro’s Fair Value estimates.Finally, there are many other ways to find strong dividend stocks. One option is to use preconfigured searches, which allow investors to screen for stocks that meet specific criteria with a single click.
There are eight preconfigured searches that focus on dividend stocks:
Please note: Some searches are reserved for InvestingPro subscribers with a PRO+ plan.
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Disclaimer: This article is written for informational purposes only. It is not intended to encourage the purchase of assets in any way, nor does it constitute a solicitation, offer, recommendation or suggestion to invest. I would like to remind you that all assets are evaluated from multiple perspectives and are highly risky, so any investment decision and the associated risk belong to the investor. We also do not provide any investment advisory services.
