Exxon Mobil Corporation (XOM), McDonald’s Corporation (MCD): Be Scared?

When the most conservative investors in the world start buying stocks because bond yields are so low, you have to wonder when the spiral comes to an end. Now is the time to start looking for safe havens.

A Scary Article

“Central banks, guardians of the world’s $11 trillion in foreign-exchange reserves, are buying stocks in record amounts as falling bond yields push even risk-averse investors toward equities.” That’s the lead sentence from a recent Bloomberg article. If it doesn’t scare you, it should.

To be fair, it isn’t as if the banks have completely lost their heads and gone 100% into equities. Of the banks that have said they own or plan to own equities, the percentages are relatively low. The percent increase, on the other hand, is large. For example, Japan was reported to be on the way to doubling its equity exposure, via exchange traded funds (ETFs), over the next year or so.

The Most Conservative

When the most conservative investors start to make the shift to equities to find higher returns and the market is at or near all time highs, you have to start thinking about downside risk. Unfortunately, if you are trying to live off of dividend income, you need to be invested. Here are some stock ideas for investors concerned about the current trends:

An Integrated Oil Giant

Royal Dutch Shell is an integrated oil and natural gas giant. It is among an elite group of companies in the world, but is trading at a steep discount to the highest quality names. The interesting thing is that the company is financially strong, has a long history of dividend increases, and looks to be well positioned for the future. It appears to be very similar to Exxon Mobil Corporation (NYSE:XOM), but with about twice the dividend yield.

The reason for Shell’s discount pricing is twofold. First, it has material exposure to Europe. That’s the company’s home market, even though the Shell nameplate is ubiquitous in The United States. Europe is struggling through a very difficult period, marked by the constant concern that the euro will wind up a failed experiment.

Second, it has made a big bet on U.S. natural gas. New drilling techniques have taken natural gas prices to historically low levels. Although prices have picked up recently, they are still so low that many projects just aren’t profitable. However, Shell expects natural gas to supplant coal as the number two energy source in the world. That seems likely and would change the now questionable gas push into a long-term winner.

With an around 5% dividend yield, downtrodden Shell is probably the best risk-adjusted option in the oil patch.

Fast Food Giant

McDonald’s Corporation (NYSE:MCD) shares aren’t exactly cheap. However, the yielded was recently around 3%, the company has a long history of dividend increases, and the stock has a very low beta. Beta is a measure of risk relative to the broader market, with lower numbers suggesting lower risk. Although the stock would likely take a hit if the stock market fell, the low beta suggests that McDonald’s Corporation (NYSE:MCD)’s drop will be less pronounced.

It’s also comforting to own a business that spans almost 120 countries with more than 30,000 locations. Moreover, it is a leader in just about every market it’s in. Add to the list that it sells reasonably and cheaply priced food, and the story is even more compelling.

Results have been relatively weak of late because of stiff competition in mature markets and some unique situations in key growth areas, like the chicken issues in China. That said, McDonald’s Corporation (NYSE:MCD)’s has proven time and again that it deserves its spot atop the food chain. Those concerned about a drop would do well to take a look.

A Little Gold

Gold might seem an odd suggestion, but if the world is going to hell in a hand basket, it might be a good idea to have a little gold exposure. Newmont Mining Corp (NYSE:NEM) is among the world’s largest gold miners. The big drop in gold prices is a concern, but many high profile investors (Jim Rogers, for example), still think gold has a solid future.

The company has some issues right now, like older mines and execution risk associated with new projects, but it also sports an impressive dividend yield of around 4%. Gold’s price drop could result in a dividend cut since the disbursement is tied to gold prices, but that doesn’t change the benefit of including a small amount of exposure to this asset class. Moreover, if gold prices do head higher on a market sell off, any dividend cut would likely be reversed.

A Scary Time

It’s a scary time to be an investor. If you are looking for dividend income, though, you have to be in the market. The three stocks above are ideas that may help keep risk in check while keeping your dividend income up.

The article Central Banks Buying Stocks, Look Out Below! originally appeared on Fool.com and is written by Reuben Brewer.

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