The risk to the market is mounting, and with it, volatility. The VIX is up nearly 50% in the last month and heading higher, which means the S&P 500 could be heading lower. Based on the outlook for persistent inflation and higher-for-longer interest rates, the S&P 500 could be in for a volatile few years, which raises the question of how to prepare. One method is to target low-beta stocks. Low-beta stocks trade with less volatility than the S&P 500, which can lower risk in a portfolio while opening the door to outperformance.
Low-beta stocks tend to fall less during downturns and have less ground to make up during upswings, a recipe for long-term outperformance. If you add a high yield and dividend reinvestment, the potential for market-beating returns is compounded.
Verizon: It's Got Value and Yield
A screen using Marketbeat's Stock Screener filtering for stocks with a beta below 0.5 and yield above 4% turns up an interesting list. Surprisingly, a half dozen or so Chinese-based financial institutions made the cut but were excluded from this list. The #1 low beta, high yield stock outside of China is Verizon (NYSE: VZ), which comes with more attractions than those.
Regarding beta and yield, the stock trades with an ultra-low beta of 0.37, and because shares are already in the bargain basement, they may not fall much further. As for yield, the stock pays more than 8%, with shares at a multi-year low. Other attractions include the low 6X earnings multiple and the analysts' belief it should be trading 15% higher at the low end of its target range.
Bristol-Myers Squibb Falls into the Bargain Basement
Bristol-Myers Squibb (NYSE: BMY) has come under pressure due to Medicare repricing negotiations, and the stock is now in the bargain bin. It's trading at only 8X its earnings outlook while paying a 4.0% dividend yield. The yield is reliably safe relative to the 2023 metrics and the outlook for 2024; the beta is attractive with the stock at these price levels and less than half the S&P 500.
Analysts have been lowering their price target this year and have the stock on the Most Downgraded list, but that is another opportunity. The low price target assumes the stock is fairly valued at critical support levels near the two-year low; the consensus target assumes the market is worth 22% more.
Gilead Has a Healthy Dividend Payment
Gilead Sciences, Inc. (NASDAQ: GILD) is another bio-pharma trading near critical support levels, offering value and yield to investors. The stock is trading near 11X its earnings with near-double-digit growth in the earnings forecast for next year. The dividend is worth more than 4.0% to investors, with the shares trading near $73.50 and the mid-point of a significant trading range. The beta for this stock is running near 0.37%, and analysts are buying it.
Marketbeat tracks 18 analysts with a consensus of Moderate Buy. That's up YOY from Hold with a price target that's down compared to last year but rising in the near term. The consensus assumes about 22% of upside for this market.
Duke Energy Yields Nearly 5.0%
Duke Energy (NYSE: DUK) made the cut with a yield of 4.8% and a beta near 0.45. This utility company is expected to grow earnings by 6.5% in 2024 to outpace expected distribution growth by several hundred basis points. This has the company set up to sustain dividend increases at a low to mid-single-digit pace for the foreseeable future. Analysts rate it at Hold and see it advancing 7% at the low end of their target range.
Public Storage: High-yield, Low-beta REIT
Public Storage (NYSE: PSA) is a REIT focused on public storage utility properties. It trades with a beta near 0.45 and pays 4.7% in yield. The company is expected to sustain revenue and earnings growth in 2024 and extend its record of distribution increases. The analysts rate it a Moderate Buy and see it advancing 20%.