Consider These Low-Beta Stocks to Reduce Volatility

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Investors commonly use beta to measure an asset’s volatility compared to the asset class as a whole.  For stocks, beta describes the degree to which a company’s shares are correlated to the broader market.  To illustrate, a stock with a beta of 1.0 can be expected to move 1% in the same direction as a 1% move in the market.  Adding stocks with low betas can be a savvy way to reduce a portfolio’s volatility, particularly with equity markets climbing to near all-time highs.  The following are a few stocks which have betas less than 0.5:

Bristol-Myers Squibb (NYSE: BMY) develops, distributes, and sells pharmaceutical products worldwide.  The company holds a market capitalization of $60 billion and a beta of 0.14.  Bristol-Myers Squibb had seven products that generated at least $1 billion in sales in 2011.  The stock has a market-beating dividend yield of nearly 4% and an enviable dividend track record.  The company has paid dividends to shareholders for more than 300 consecutive quarters.  In late January, Bristol-Myers Squibb increased its dividend by nearly 3%.

AT&T (NYSE: T) is the largest telecommunications provider in the United States.  The company has a market value of $200 billion and a beta of 0.38.  Through the first nine months of 2012, net operating revenues were up a little less than 1% versus the prior year.  AT&T trades at a reasonable valuation, with a price to book ratio of less than 2.0 and an enterprise value-to-EBITDA ratio of about 7.  The stock currently pays a dividend of $1.80 per share, which equates to a current yield of about 5.1%.  AT&T has raised its dividend at a rate of about 2.3% annually over the last five years.

Wal-Mart (NYSE: WMT) is the king of discount retailers in the United States.  Wal-Mart has a beta of 0.39 and a huge business that can withstand any market environment.  In fact, Wal-Mart was one of only two Dow Jones companies to increase in share price in 2008.  With a market capitalization of $230 billion and annual revenues of more than $460 billion, Wal-Mart is one of America’s juggernaut companies.  Wal-Mart has more than 2 million employees and operates more than 10,000 stores in over 25 countries.  Wal-Mart showed solid growth in net sales of almost 6% in 2012.  Analysts expect $4.92 in earnings for fiscal 2013, representing growth of almost 10%.  Wal-Mart has grown its dividend by 12% percent annually over the last five years and currently yields 2.25%.

The Bottom Line

Recently, the Dow Jones Industrial Average breached 14,000 for the first time since 2007.  The Dow has now retraced all of the losses incurred during the Great Recession.  Skittish investors still shaken by the brutal memories of those days might be reluctant to commit new capital to markets on the verge of breaking all-time highs.  However, stocks with low betas, successful businesses and hefty dividend yields can provide returns regardless of the prevailing market environment.


Robert Ciura has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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