Value Line offers a number of proprietary measures to help investors identify so-called conservative stocks, the most notable being the Safety Rank. This measure is computed by averaging a stock’s Price Stability score and the company’s Financial Strength Rating. Safety Ranks range from 1 (Highest) to 5 (Lowest) and are distributed roughly in a bell curve, with the greatest number of stocks scoring 3 (Average) and the smallest number at the extremes (i.e. 1 and 5). Thus, selecting stocks that hold the best possible scores (i.e., 1 or 2) would help investors to avoid riskier fare.
Value Line provides screens each week, published in the Index section of The Value Line Investment Survey, that cull out stocks earning the highest Safety Rank and the second-best Safety Rank (presented as two separate screens). This alleviates the need to rummage through on a stock-by-stock basis, trying to find the most conservative fare. We also added a few other parameters such as a dividend yield above 3.8% and a market cap above $20 billion to ensure only well established companies made the cut. A couple of interesting stocks that made the list (see below) include Altria Group (MO) and GlaxoSmithKline (GSK).
Altria Group, Inc. is a multinational tobacco corporation based out of Virginia which serves as the parent company to Phillip Morris USA and John Middleton, Inc. The company operates in four segments including cigarettes (which make up roughly 85% of 2013 income), smokeless products (12%), wine (1%) and other services (2%). Some of their more popular cigarette brands includes Marlboro, Barton & Hedges, Merit, and Virginia Slims.
Altria reported solid fourth quarter and full-year results in 2013, with earnings growing over the previous year figure of $2.06 per share, to $2.26 a share. However, the industry continues to face pressure as demand continues to decline, and new regulations hamper profitability. The United States cigarette market is expected to decline between 3% and 4% this year. That said, Altria’s brand awareness should help offset these headwinds in the domestic market. The company is continually seeking alternate methods of generating income, including e-cigarettes, which have provided a compelling new revenue stream for Big Tobacco. Altria recently launched its own e-cigarette brand called Mark-Ten in select markets, and will look to grow distribution this year, despite rising competition from some of its peers such as Reynolds American (RAI).
Altria’s dividend has steadily increased every year, a trend which should continue in 2014. The company will likely pay out about $2.00 per share to its investors in 2014, and the dividend ought to be well covered considering the company’s strong financial strength. Additionally, the yield remains above the Value Line median, and the dividend is expected to grow over the three to five year period. With an Above Average Safety score of 2, and the highest mark for Stock Price stability (100 out of 100), we view these shares worthy of consideration for income-seeking conservative investors.
GlaxoSmithKline is a British global research-based healthcare corporation formed in 2000 from the merger of Glaxo Wellcome plc. and SmithKline Beecham plc. The company creates, develops, manufactures, and markets a broad range of products within three operating segments including pharmaceuticals, vaccines and consumer healthcare. GlaxoSmithKline is the world’s sixth largest pharmaceutical company in terms of 2013 prescription drug sales. Some of its main competitors include Pfizer (PFE - Free Pfizer Stock Report), Novartis (NVS), and Sanofi (SNY).
After a strong year in 2013, in which earnings rose $0.61 over the 2012 figure, to $3.52 a share, the company is optimistic about 2014 performance considering its healthy product pipeline. Despite the recent fallout from a failed clinical trial for one its lung cancer vaccinations, the company expects to bounce back with testing for asthma and HIV related vaccinations this year. Indeed, the current outlook remains bright with growth projected for the next one- to three-year period on both the top and bottom lines.
While shares of GlaxoSmithKline have remained relatively flat in price since January, we expect some movement to occur after high-profile product launches take place later in the year. The company’s strong financial position has helped it raise its quarterly dividend over the past few years, and we expect the full-year payout to reach $2.87 a share for 2014. Dividends are also projected to grow over the next three to five years, as long as the company manages to avoid any setbacks from testing its products. With an above-average dividend yield, north of 5%, income-oriented investors may find this issue attractive.
Too, this equity holds our Highest rank for Safety (1), making it a favorable choice among conservative investors. The company’s A+ grade for Financial Strength is also considered top notch. Risk-averse investors looking for current income should consider taking a position here.
||Market Cap $ (Mil)
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|Philip Morris Int'l
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At the time of this article’s writing, the author did not hold positions in any of the companies mentioned