The Age of the Cautious Stock Investor

Posted: Sep 12, 2011 12:01 AM

All investments present some risk, even CDs, but some investments are safer than others. For example, in the bond market, a pre-refunded bond is a bond for which the municipality already has accumulated the money necessary to pay back the bond owners.

And some municipal bonds come with insurance, which also dramatically lowers investment risk.

How about stocks? Are there features of stocks or their underlying corporations which help stave off stock price volatility? 

Of course there are. 

One of these features is a dividend. 

When an investor is earning a 4% yield from a stock, he/she is much less likely to panic and sell that stock during a market correction than if the stock paid no dividend at all.  Fewer people selling in a panic means fewer ugly share price fluctuations.

Corporate stock repurchase programs (buybacks) also serve to protect share prices. 

During market corrections, corporations take some of the money they’ve set aside to repurchase stock, and they buy low, say at $40 per share, rather than buying at the more normal price, which might be $48 per share. This process serves to limit the downside on a stock price during a market correction, because when those big chunks of corporate money come in to purchase stock, those purchases serve to support and stabilize stock prices.

Cautious stock investors who want to buy low during stock market corrections should concentrate on stocks with dividends and share repurchase programs, such as Kroger Co. (KR, $22.02).  Kroger is a manufacturer and retailer of groceries and fine jewelry in the United States. Kroger had sales of $82 billion and net income of $1.1 billion in 2010. Wall Street consensus estimates show Kroger’s earnings per share growing another 32% through fiscal year 2014.  The dividend yield is 1.9%.

Kroger announced a $1 billion stock repurchase program this past March, and as of the end of its second quarter of 2011 (August 13, 2011), there remains $400 million in the repurchase program.

Kroger stock has traded largely between $20 and $24 since the 2008 Financial Meltdown, rising earlier this year to a slightly higher trading range of $22 to $25.50.  This is an opportune time for investors to buy low, earn a dividend which pays them much more than their local bank, and await the next stock market rebound.

Happy investing!

Crista Huff is a retired financial advisor from a major Wall Street company.  Visit her website at or friend her on Facebook.

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