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What are we looking for?

Low-volatility, high-dividend-paying stocks, using our investment philosophy focused on safety and value. My team member Allan Meyer and I believe this approach will appeal to investors, given the uncertainty and instability in the markets of late.

The screen

We started with U.S. companies in the S&P 500 index, which is composed of large cap names, a safety factor. Larger names by market capitalization tend to offer more stability and trading liquidity.

We used beta to identify our low-volatility stocks; it measures how much the stock moves relative to the market. We limited the list to companies that have a beta of less than one, which implies they are less volatile than the market. The list is sorted on this metric from least to most volatile.

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Dividend yield is the projected annualized dividend divided by the recent share price. We focused on high yielding names of 3.5 per cent or more.

Dividend payout is the dividend payment divided by earnings. A lower number is preferred and may hint that there is room for future dividend hikes. We’ve capped payout at 100 per cent as we wanted to focus on reliable dividends and anything above that figure could signal the potential for a cut.

Debt-to-equity is our final safety measure. It is the debt outstanding divided by shareholders’ equity. A smaller ratio indicates a company has lower levels of debt or leverage. Anything under 100 per cent assumes it has enough equity to repay its debts.

Price-to-earnings is a valuation metric: The lower the number, the better the value. All companies on the list are projected to have positive earnings.

Earnings momentum is the change in annual earnings over the last quarter. A positive number implies earnings are increasing, while the opposite is true for a negative number.

Lastly, we’ve provided the 52-week total return to track recent performance.

What we found

Exelon Corp. has the best earnings momentum and scores well for safety and value, while H&R Block Inc. is the highest yielding name and has the most attractive valuation. Edison International, United Parcel Service Inc. and Public Service Enterprise Group Inc. also look attractive on most measures, but it should be noted that UPS has the highest debt levels on the list. In general, most companies shown have positive earnings momentum but also debt levels above 100 per cent, which is less than optimum.

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U.S. big caps with higher yield and lower volatility

CompanyTickerMkt. Cap. (US$ Bil.)BetaDiv. Yld. (%)Div. Payout (%)Debt/Equity (%)P/EEarns. Momentum (%)52W Ttl. Rtn. (%)Recent Price (US$)
Duke Energy Corp.DUK-N66.30.44.273.5130.817.11.44.190.31
Pinnacle West Capital PNW-N9.20.43.881.3105.816.67.7-10.982.23
Verizon CommunicationsVZ-N237.80.54.352.0181.611.70.22.057.44
Southern Co.SO-N63.60.54.154.2168.518.80.619.760.33
Exelon Corp.EXC-Q38.10.53.948.1117.312.88.4-18.739.15
Kellogg Co.K-N21.50.63.680.3288.416.20.013.162.74
Edison InternationalEIX-N21.90.64.264.3121.913.41.1-6.860.27
Pfizer Inc.PFE-N196.30.64.350.382.613.6-3.0-11.935.39
Public Service EnterprisePEG-N26.70.63.756.0107.515.72.5-8.652.95
Walgreens Boots AllianceWBA-Q38.60.64.246.171.67.6-2.0-14.943.98
Entergy Corp.ETR-N20.70.73.657.8189.818.31.511.7102.91
H & R Block Inc.HRB-N2.90.76.950.2275.64.4-0.5-39.114.99
Omnicom Group Inc.OMC-N12.30.84.641.8185.19.72.0-23.056.80
PPL Corp.PPL-N20.50.96.268.6177.410.72.1-11.626.70
United Parcel Service Inc.UPS-N84.70.94.174.8772.613.82.3-10.698.69
Paychex Inc.PAYX-Q23.90.93.780.330.422.92.7-16.666.54
Juniper Networks Inc.JNPR-N7.20.93.775.036.512.9-0.6-19.421.67

Eikon & Wickham investment Counsel Inc.

Investors should contact an investment professional or conduct further research before buying any of the securities listed here.

Sean Pugliese, CFA, is an investment portfolio manager at Wickham Investment Counsel, helping individuals, families and other investors.

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