The market’s recent volatility has been accompanied by a number of high profile commentators warning investors that all is not right with the global economy. For example, The Australian Financial Review recently ran two articles with the following headings: ‘Volatility to return with a ‘vengeance’ in 2014′ and ‘Another GFC is on its Way’.
Positioning your portfolio for a potential market correction is no easy task. One way to protect your downside is by owning ‘value stocks’. Value stocks generally have the following attributes – they are on low multiples to earnings and book value, have strong balance sheets and above average dividend yields.
This downside protection comes from two angles. Firstly, the stock’s low pricing in relation to assets and earnings can protect it from getting significantly cheaper. Secondly, a high, maintainable dividend can not only also support the share price but also provides income to an investor, creating buying power to purchase more stocks during a market fall.
Here are four stocks which have some appealing value metrics, including high dividend yields. (Consensus forecasts are from Morningstar Research).
1) Prime Media Group Limited (ASX: PRT) – The media company’s shares are currently trading at 99.5 cents per share (cps) with a forecast dividend of 7.3 cps to be paid in the current financial year (FY). This implies a dividend yield of 7.3%.
2) Countplus Ltd (ASX: CUP) – The accountancy network’s share price last traded at $1.765. The firm is forecast to pay 12 cps in dividends in FY 2014 which places the stock on a yield of 6.8%.
3) Sigma Pharmaceutical Limited (ASX: SIP) – Pharmaceutical products distributor and wholesaler Sigma is forecast to pay a steady dividend of 4 cps this financial year. With the share price at 61 cents this equates to a yield of 6.56%
4) WDS Limited (ASX: WDS) – Unlike Prime, Countplus and Sigma which are forecast to keep their dividends steady this year, WDS is forecast to see its dividend increase from 3.8 cps in FY 2013 to 6 cps this year (and up to 10 cps in FY 2015). With the share price at 87 cents this implies a dividend yield of 6.9%.
While some investors will move to cash to try and protect their wealth when they think the market is in for a correction, timing the market is a tricky game to play. Rather it can be better to hold a quality, defensive portfolio of stocks and allow your wealth to grow through time in the market.
5 stocks under $5
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*Extreme Opportunities returns as of June 5th 2020
Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.
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