The stock market has shown elevated volatility over the past year. With the S&P 500 currently down 23% year-to-date (YTD), investors need to be aware of the volatility of their stocks. Owning too many high-volatility positions can create a scenario where your portfolio loses more than the S&P 500 index during bear markets.
To help prevent this, we suggest that investors consider a stock’s beta value (a common measure of stock volatility) when purchasing a stock. The higher the beta, the more volatile it can be relative to the S&P 500 index, which means greater losses in a market downturn. On the other hand, low-beta stocks generally decline less than the broader market in a downturn.
This article will examine three of our top-ranked low-beta dividend stocks that have relatively low volatility compared to the broader market.
Low-Volatility Dividend Stocks: McDonald’s (MCD)
McDonald’s (NYSE:MCD) is the world’s leading restaurant chain with over 40,000 locations in about 119 countries at the end of 2021. Over 90% of the stores are franchised, and the rest are company-owned. However, the company owns about 55% of the real estate and 80% of the buildings in its network. Total system sales were approximately $112 billion and total company revenue was around $23.2 billion in 2021.
The company has performed relatively well in a challenging macro environment. In the most recent quarter, total revenue came in at $5.7 billion, a 3% decrease from $5.8 million compared to Q1 2021 on 4% rise in systemwide sales offset by currency headwinds. Revenue fell 15% at company-owned stores, while revenue increased 7% at franchised restaurants. Earnings declined 46% to $1.60 per share compared to $2.95 per share in comparable periods because of higher input costs, despite price hikes.
McDonald’s competitive advantage lies in its global scale, cost advantages, immense network of restaurants, well-known brand and real estate assets. The company has one of the most well-known brands in the world and has successfully replicated its business model globally.
Next, McDonald’s often owns prime real estate, making it difficult for competitors to gain traction. That said, barriers to entry are non-existent and competition in the market space is intense. However, the company’s superior track record against numerous competitors has illustrated why it is the industry leader.
During the Great Recession, McDonald’s posted excellent results, with earnings per share (EPS) of $2.91, $3.67, $3.98 and $4.60 over the 2007 through 2010 stretch, while the dividend kept on increasing to boot. Results bounced back in 2021 as well.
McDonald’s stock has a five-year beta value of 0.57. This means that for every 1% decline in the S&P 500, McDonald’s stock can be expected to decline by 0.57%. MCD is a low-beta stock with reduced volatility.
Walmart (NYSE:WMT) is the largest retailer in the world, serving more than 230 million customers each week. Revenue should be around $595 billion this year. Walmart posted second-quarter earnings on Aug. 16, 2022, and results were better than expected on both revenue and profits by wide margins. Adjusted EPS came to $1.77, which was 17 cents better than expected. Revenue was up more than 8% from the year-ago period, rising to $153 billion. That beating expectations by more than $2.6 billion. Comparable sales in the U.S. grew 6.5% year-over-year (YOY), and were up 11.7% on a two-year stack basis. Ecommerce growth continues to lead the way as that metric came in up 12% for this year’s Q2 and up 18% on a two-year stack basis.
Walmart also noted it continues to gain share in grocery sales. Sam’s Club’s comparable sales rose sharply, adding 9.5% YOY and 17.2% on a two-year stack basis. Membership income was up 8.9% as the chain’s member count hit another all-time high. Walmart International sales were $24.4 billion, up 5.7% YOY, including a $1 billion impact from currency fluctuations. The company noted its three largest markets all saw double-digit comparable sales gains. The company sees revenue growth at 4.5% for this year, or 5.5% on an adjusted basis.
Walmart is a low-volatility stock, as it has a five-year beta value of 0.53. Walmart’s competitive advantage is in its enormous size as it can buy and ship product at a scale no other company can rival. This allows it to operate with low prices to consumers and as more than half of its revenue comes from groceries, its recession performance is excellent. The company managed to increase earnings steadily during and after the Great Recession. Hard economic conditions tend to send consumers on the margins to Walmart, which is also an advantage.
Low-Volatility Dividend Stocks: Verizon (VZ)
Verizon (NYSE:VZ) has a five-year beta value of just 0.34. Verizon is one of the largest telecom companies in the country. Wireless contributes three-quarters of all revenues, and broadband and cable services account for about a quarter of sales. The company’s network covers about 300 million people and 98% of the U.S. Verizon has now launched 5G Ultra-Wideband in several cities as it continues its rollout of 5G service.
In the most recent quarter, revenue of $33.8 billion was flat compared to the prior year and in line with estimates. Adjusted EPS of $1.31 compared unfavorably to $1.37 in the prior year and was 1 cent below estimates. Verizon had 12,000 net new postpaid phone customers during the quarter, far below estimates of 167,000 net adds. Revenue for the consumer segment grew 9.1% to $25.6 billion, again driven by the addition of TracFone, higher equipment sales and wireless revenue growth. Average revenue per account also increased 2.4%. Wireless revenue grew 9.1%. Retail connections totaled 142.8 million and retail postpaid phone churn remains low at 0.81%.
One of Verizon’s key competitive advantages is that it is often considered the best wireless carrier in the U.S. This is evidenced by the company’s wireless net additions and very low churn rate. This reliable service allows Verizon to maintain its customer base as well as give the company an opportunity to move customers to higher-priced plans. Verizon is also in the midst of rolling out 5G service, which will give it an advantage over other carriers. Another advantage for Verizon is the stock’s ability to withstand a downturn in the market.
With a very low beta value and a high dividend yield above 5%, Verizon is a particularly appealing dividend stock for risk-averse income investors looking to reduce volatility.
On the date of publication, Bob Ciura did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.