BlackRock focuses on low volatility dividend growers. That makes this fund’s portfolio a wonderful place to graze for conservative income ideas like General Electric Company (NYSE:GE), Pfizer Inc. (NYSE:PFE), and Exxon Mobil Corporation (NYSE:XOM).
When looking for stocks, the co-managers of Equity Dividend Fund look for “…dividend payers that are US-based, are exhibiting strong growth, have globally diverse revenue streams and have offered excellent dividend growth and sustainability over time.” That’s a conservative approach, but one that’s led the fund to solid returns.
Moreover, the fund has a 3-year beta of just 0.86. This means that the fund is relatively less volatile than the broader market—a nice thing to see. While investors could buy the fund, it’s important to remember that a fund is a constantly changing portfolio. So, its dividends have been variable. It’s hard to live off of constantly changing dividends.
For investors looking to create a growing dividend stream, however, using Equity Dividend Fund’s portfolio as a starting point for stock selection makes a great deal of sense. Here are some holdings that could be a nice addition to a conservative dividend portfolio:
General Electric Company (NYSE:GE)
The 2007 to 2009 recession left General Electric Company (NYSE:GE) at a crossroads. It had ventured well beyond its industrial roots and that left the company vulnerable to the 2007 to 2009 economic downturn. After a dividend cut and a government handout, management chose to refocus.
It has sold its NBC unit and is working to trim is financial arm. Moreover, it is concentrating around a core of businesses that management believes hold material long-term growth prospects. This is a solid start. However, the bigger issue is regaining the trust of investors.
So far the company has been doing a good job of getting back to its roots, hitting its internal targets, and proving to the market that General Electric Company (NYSE:GE) is still a great company. Although a few years ago it would have been an aggressive investment, today GE is a worthwhile turnaround play that even conservative investors could love. With a 3% or so dividend yield, it’s still well worth owning.
Pfizer Inc. (NYSE:PFE)
Pfizer Inc. (NYSE:PFE) is among the largest drug companies in the world. Like GE, it has been trimming itself down to its core business of finding, making, and selling drugs. This effort involved selling its infant formula division and spinning off its animal health arm. Although both businesses were cash cows, management believed they distracted the company from its core niche.
Today the company is pretty much a pure play drug company. Its size is a competitive advantage in research, manufacturing, and distribution. The problem of late for all drug companies has been the expiration of drug patents. While this has hurt Pfizer Inc. (NYSE:PFE), it now appears to have a decent pipeline of new drugs in development.
Part of that is the result of acquisition activity, including the relatively recent purchase of Wyeth. That deal should also allow for continued cost cutting as the two entities combine their operations. While a dividend cut a few years ago should be concerning, the annual disbursement has been increased every year since then. With a 3%+ dividend yield, this giant pharmaceutical company would make a nice addition to a conservative portfolio.
Exxon Mobil Corporation (NYSE:XOM)
Exxon Mobil Corporation (NYSE:XOM) is perhaps the single most notable integrated energy company. Its operations span from oil to natural gas, and from the drill hole to the gas pump. If you are looking for exposure to the energy market, Exxon Mobil Corporation (NYSE:XOM) is a one-stop shop with an impressive record of success.
Part of that success comes from the company’s strong balance sheet and management’s long-term focus. For example, management sees natural gas becoming an increasingly important energy source. To take advantage of this it acquired XTO Energy, a specialist in the space. With prices for the commodity at historic lows right now, that move looks like a mistake.
Exxon Mobil Corporation (NYSE:XOM) isn’t looking to jump ship. It expects natural gas to unseat coal as the second most used energy source over the coming decades. That means increased demand and shortly thereafter likely increased prices. And the company has the fortitude and money to wait.
While commodity prices keep the top and bottom lines variable, the dividend has been increased annually for years. Conservative investors looking for energy exposure should like the stock. However, the 2.5% dividend yield is on the low side. Investors seeking more income might consider similarly situated Royal Dutch Shell, where the 5% dividend should more than offset any additional risks associated with the stock.
It matters a great deal where investors start their search process. For some it’s a stock screen. However, using a mutual fund’s holdings can provide a pre-approved list of options that can save investors time and energy. General Electric Company (NYSE:GE), Pfizer Inc. (NYSE:PFE), and Exxon Mobil Corporation (NYSE:XOM) all have BlackRock’s dividend seal of approval.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company (NYSE:GE) Company.