UBS sees opportunities in these defensive stocks. They also pay dividends

Investors looking beneath the surface of the market could find some good deals in dividend-paying defensive names, according to UBS. Stocks saw strong gains the first half of the year , which ended Tuesday. Yet the market is narrowly concentrated and being driven by a handful of megacap tech companies. That has led correlations across the broader universe to fall to historically slow levels, analyst Sean Burns said in a note last week. In other words, instead of the broad market moving together, stocks are trading on their own merits. Since investors are avoiding lower-risk companies, many now have attractive valuations, he pointed out. In fact, the gap between expensive and cheap defensive names is near the widest levels seen since 1990 and roughly double its long-run average, Burns said. "We would not characterize the defensive setup as a precise timing call, but the starting point has improved materially," he wrote. "Low-risk stocks now trade at a 4.4% market-implied yield versus 1.4% for high-risk stocks, and comparable valuation spreads have historically been followed by positive forward low-volatility returns." With that in mind, Burns looked for defensive opportunities in names with at least a $5 billion market cap, except real estate investment trusts. They also have a 1-year trailing beta to the S & P 500 of less than 0.5x, which means it is half as volatile as the broader market over the last 12 months. …