Number Cruncher

Eight U.S. defensive dividend stocks for a frothy market

By September 7, 2021 No Comments


Dividend-paying U.S.-listed stocks with lower risk.

The S&P 500 is up 19.5 per cent over the past six months and its price-to-earnings ratio now stands at 35.4, higher than the 1999 dot-com peak of about 33. Given the current valuation, investors may prefer to reduce their exposure to the U.S. market and/or select stocks that are fundamentally supported by a dividend.

THE SCREEN (you can add it to your screener section here)

We screened U.S. stocks focusing on the following criteria:

  • Market capitalization higher than US$2-billion;
  • Beta of 0.8 or less. A beta lower than one implies that the stock price should increase less during rising markets and should decline less in a falling market;
  • Three-year annual dividend growth higher than 5 per cent;
  • Five-year annual earnings per share growth higher than 7 per cent – we want the dividend growth to be backed by earnings per share growth;
  • Dividend yield higher than 2 per cent – we’re looking for companies with a larger yield than that of the S&P 500, which is currently 1.3 per cent;
  • StockPointer (SP) Risk Score lower than 40 – The risk score is scaled from zero to 100 where 100 is a high-risk company. 40 is considered low-to-medium risk. The score uses many criteria such as valuation risk perceived by our software, leverage and stability of profitability.

For informational purposes, we have also included P/E, five-year annual return of capital, and one-year price return. Please note that some ratios may be shown as of end of previous quarter.


Inovestor for Advisors is a fundamental-analysis research platform specializing in the economic value-added (EVA) approach. With Inovestor, advisers can quickly identify attractive investment opportunities, outsource their stock picking by using model portfolios, and easily communicate investment decisions with clients through client-friendly reports. StockPointer is a decision-making tool covering Canadian and U.S. securities developed for retail investors and investment advisers. In addition, Inovestor allows users to create personalized filters, build custom portfolios and carry out in-depth analysis on more than 13,000 companies (Canadian and U.S. stocks and American depositary receipts).

PFE-N Pfizer Inc. 46.84 262257 0.77 13.5 23.0 3.3 15.2 5.0 20.2 37.6
WSO-N Watsco, Inc. 289.13 11200 0.75 15.9 34.6 2.7 13.0 11.3 32.2 25.1
PEP-Q Pepsico, Inc. 157.09 217098 0.80 11.9 36.0 2.7 10.7 7.4 26.4 8.9
ERIE-Q Erie Indemnity Company Class 180.87 8423 0.03 23.6 26.5 2.3 9.9 7.2 34.7 -14.3
CVBF-Q Cvb Financial Corp. 19.94 2710 0.73 10.3 24.8 3.6 9.8 8.7 12.7 13.0
PG-N Procter & Gamble Company 144.05 349998 0.59 12.3 31.5 2.4 9.3 5.2 25.3 6.0
TSN-N Tyson Foods, Inc. Class A 78.23 27993 0.75 12.0 19.9 2.3 8.7 14.0 12.1 27.1
PKG-N Packaging Corporation Of Ame 152.45 14480 0.73 13.3 31.0 2.6 7.3 12.2 22.8 46.4


Pharmaceutical giant Pfizer Inc. has the highest five-year EPS growth on the list at 15.2 per cent, and second-lowest risk score, at 22.8. Its COVID-19 vaccine revenues, which everyone had thought would be non-recurring, are increasingly likely to continue, at least in the medium term. A growing body of research is suggesting a third injection may give additional protection against the virus for certain vulnerable populations, such as those in long-term care.

Watsco Inc., which distributes heating, air conditioning and refrigeration equipment, has the second-highest earnings growth (13 per cent) and return on capital (15.9 per cent) on our list. As a distributor, the company needs relatively little capital to operate, leaving space to pay dividends. In the long term, the company could benefit from more recurrent extreme temperatures, such as we saw in Western Canada this summer.

Food and beverage company PepsiCo Inc. has a solid income stream from its various consumables such as Pepsi, Lay’s, Doritos, Quaker Oats, Aquafina and Gatorade, to name a few. PepsiCo has repetitive sales, reputable brands and respectable earnings and sales growth – key characteristics that we look for in a defensive company.

Investors are advised to do further research before investing in any of the companies listed in the accompanying table.

Anthony Ménard is an investment analyst at Inovestor Asset Management.


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