If you’re like me, then you have probably entered your investments into a portfolio tracking service for easy monitoring. Instead of manually typing individual ticker symbols day after day for stock quotes, you can enter them once. After that, it just takes a click of the mouse to instantly see how all of your holdings are performing on one screen.
It’s a real time saver. And many financial sites like Morningstar and Yahoo! Finance offer this service for free.
Before long, you’ll notice that on up days when most stocks are in the green, some holdings always seem to ride a little bit higher than others. If most stocks in the group are up 1% to 2%, these outliers might gain 3%. The opposite is true on down days. When most stocks are in the red by 1% to 2%, these typically get hit harder and might drop 3%.
I’m not talking about an isolated good (or bad) day triggered by company-specific news, but simply the stock’s general sensitivity to market fluctuations over a period of months or years. There is a way to measure this sensitivity. It’s called beta, and it measures the degree to which a security rises and falls in relation to the broader market.
A stock with a beta of 1.0 tends to move in lockstep with the S&P 500. A higher beta of 2.0 indicates the stock will rise or fall twice as much as the crowd on a given session (wonderful on green days, not so much on red ones). Conversely, a lower beta of 0.5 suggests the stock tends to swing just half as much as the market.
It’s possible for a stock to have a negative beta. That means there is a negative correlation, so these stocks often rise when the market is falling and fall when the market is rising.
Utilities are frequently used to illustrate the concept of low-beta stocks. They are slow and steady performers that march to the beat of their own drum and don’t get bent out of shape when the market is in panic mode. That’s because they are mostly immune to economic weakness.
Take my local power provider American Electric Power Company Inc (AEP).
As of this writing, the stock is currently trading at $63 per share and has a beta of 0.13. So if the market were to plunge 3%, this stock could reasonably be expected to fall just 0.4%, or about 24 cents per share.
At the other end of the spectrum is an economically sensitive company like semiconductor maker Advanced Micro Devices, Inc. (AMD), which has a beta of 2.74. On the same day that AEP loses 0.4%, AMD might freefall 8.2%.
If you’re a bit leery of the market’s current nosebleed altitude and want to tone down your exposure to potential stomach-churning volatility — yet still harvest decent income — then consider some of the low-beta, high-yielding dividend stocks in this stock screen below.
Remember, this screen is just meant as a starting point from which to conduct further research to see if any of these might fit your investing criteria.
I have a diverse audience at my premium income newsletter, High-Yield Investing. Some subscribers are trying to step on the gas pedal and build wealth, while others are in their retirement years and more concerned with capital preservation. Either way, though, a few low-beta, high-yielding dividend stocks can provide some diversification and help optimize risk-adjusted returns.
How many depends on your goals and objectives. If the idea of owning an entire fund of low-beta, blue-chip stocks appeals to you, then take a look at the PowerShares S&P 500 Low Volatility ETF (SPLV), which invests in 100 stocks with the least volatility over the past year.
In the 10 worst market pullbacks since 2011, the fund only experienced 43% of the market’s downside loss — and actually rose in one of the declines.
There are several interesting candidates on this list, although I already have exposure to most of these sectors. But I will be taking a closer look at Physician’s Realty Trust (DOC), which owns and leases doctor’s offices, surgical clinics and hospitals.
Since its creation in 2013, the veteran management team has sunk $2.8 billion into 246 properties in 29 states — which are 96% leased. The company has a sound, investment-grade balance sheet, and ready access to capital to continue expanding its portfolio.
The stock offers an attractive dividend yield near 5%, and has delivered total returns that outpace the average healthcare REIT by 90% since it went public in 2013. This is not a recommendation, though. I’ll be researching it more and may profile it in-depth at a later date in High-Yield Investing. To learn more about my newsletter, and get more high-yielding dividend stock picks, click here.
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