The Dow Jones and other indexes have risen to new heights and the rally has been going on for a 7 years, will there be a correction? It is with these thoughts, people turn to ensuring their portfolios will be able to withstand a correction. What stocks will protect you or ensure that if the market was to correct, they would not go down too far? In early January, Khaled Eniba of Thomson Reuters pondered the question and came up with some criteria you need to consider when investing defensively:

stick to traditional sectors of consumer staples, health care, telecom and utilities

stocks with a training price to earnings (P/E) ratio of less than 21 and forward P/E of less than 17

free cash flow greater than the dividend yield

5 year average dividend payout ratio that does not exceed 60%

5 year net income volatility is less than the S&P 500 average of 21%

Company                    Mkt Cap   Beta    P/E    Forward   Dividend    FCF    Div   Net Income

($ Bil)                                P/E            Yield %      Yield   P R    5 yr vol

J&J                                 316.343  0.75    20.38      16.31           2.8            5.00    54.5        10.8

Wal-mart                    211.158    0.09   14.92    15.84            2.9            7.54    36.6          3.0

Amgen                         118.164     1.16    15.87    12.28             2.9           7.13    31.9         12.5

CVS Health                   87.128   0.86   17.43     13.93             2.4            6.94   25.0         3.5

Anthem                         37.615   0.67    16.76    12.40             1.8            9.25    17.9        5.5

McKesson                      33.198   1.06     16.48   11.83              0.8           9.02   13.2        10.0

Kroger                             30.883   0.78   15.69   14.77             1.5            4.81    21.8       18.5

Tyson Foods                  22.410   0.16    13.82   12.90            1.4             9.02   12.5        9.9

JM Smucker                   14.904   0.53   20.86  16.05             2.3            8.43    49.2     14.8

Quest Diagnostics       12.814   0.67   19.57    16.94            1.9            4.27     25.2     15.0

Universal Health         10.817   1.10     15.72    13.82           0.4            5.93       6.5     3.6

Linking to dividend paying stocks, all these companies pay a dividend and it is a reason to own them. The markets will go up and down, generally we all like them when they go up, but if the companies pay a dividend you will protected on the downside. Profitable companies tend to have higher P/E ratios because they make money, while you are searching for your investments look at the ability to sustain the dividend – payout ratios and free cash flow. If you buy these types of companies, you will have less stress in your life and be able to either reinvest the dividends or use the dividends to buy other companies.

There are more questions than answers, till the next time – to raising questions.