The stock market has proven to be the best long-term investment. Despite that fact, stock prices can be volatile in the near term. Most recently, the 4% drop for the S&P 500 has caused some investors to wonder if this is the start of a market correction.
For investors that want to avoid stock market volatility, there are certain stocks to own. Today, I’ll present five safe dividend stocks that cautious income investors should own. These safe stocks offer a relatively high dividend yield that’s well above the average S&P 500, coupled with minimal stock volatility.
The majority of stocks in the S&P 500 pay dividends, with the index currently yielding 1.9%. Investors should look for high quality stocks with a superior yield and less volatility.
The best way to measure volatility is “beta.” A beta of 1 means the stock price moves in tandem with market. And, a beta of less than 1 suggests that the stock is less volatile than the market.
Additionally, I recommend investing in companies that operate in defensive industries. This means investing in companies whose products or services will remain in high demand regardless of the economic backdrop.
Are you looking to make your investment portfolio more sound by owning the safest dividend stocks? If so, here are my top five stock recommendations.
Safe Dividend Stock #1: McDonald’s (NYSE: MCD)
Every dividend-paying list should begin with McDonald’s. That’s because the company has increased its annual dividend payment every year since 1976. The 37-year track record of consecutive dividend increases is amazing. And with a dividend yield of 3.3%, McDonald’s pays far more than the average S&P 500 stock.
McDonald’s is the world’s largest fast food chain, and has one of the broadest geographical reaches. It has over 34,000 restaurants spread across nearly 120 countries. Even with its reach, there’s still plenty of room for growth. The global fast food and informal eating market is a $1.2 trillion market. McDonald’s only owns about 10% of the market.
The weak economy has helped McDonald’s, since many consumers are looking for inexpensive food. But the company also performs well as the economy strengthens, since consumers have more money to spend eating out.
McDonald’s geographical diversity and ability to attract consumers regardless of the economic environment, helps insulate it from the ups and downs of the market. McDonald’s has a beta that’s only 0.35.
Safe Dividend Stock #2: General Mills (NYSE: GIS)
The global food market remains a great investment. It’s a basic necessity, and as the global population increases, demand will continue increasing. General Mills is one of the best ways to capitalize on the rising demand for food. The company pays a 3.2% dividend yield. It has increased its annual dividend in each year over the last ten years. The beta is a remarkably low 0.24.
The company has a very strong portfolio of brands. Some of its most popular brands include Hamburger Helper, Pillsbury, Progresso, Yoplait and Big G cereals. General Mills is also well positioned to benefit from the rise of health-conscious shoppers. Over two-thirds of General Mills’ revenues are derived from health and nutrition products.
International markets are also a big growth opportunity for General Mills. In emerging and developing markets, the competition is less intense. Plus, General Mills benefits from expansion of the middle-class. The company already has a solid footing in international markets, getting around two-thirds of its revenues from international markets.
Safe Dividend Stock #3: ConAgra Foods (NYSE: CAG)
ConAgra Foods is another safe dividend stock in the food industry. Its primary focus is private label foods. With its 2013 acquisition of Ralcorp, it became the largest private label foods company in North America. As a result of its dominant position, ConAgra has been able to increase its annual dividend payment in each of the last five years. The stock currently offers a 3.2% dividend yield.
The company’s financial performance has been consistent, since its products remain in high demand regardless of the economic backdrop. Shares of ConAgra have outpaced the S&P 500 over the last five years as shoppers have been trading down from branded goods to private label foods. What’s more is that the company has managed to outperform the market with less volatility. ConAgra has a low beta, at only 0.4.
But ConAgra could also prove to be a growth story as more grocery stores looks to expand their profits by creating their own brands. This includes the likes of Target (NYSE:TGT), which is using ConAgra’s food products to build its store brand called Simply Balanced.
Safe Dividend Stock #4: Dr. Pepper (NYSE: DPS)
Most investors only think of PepsiCo (NYSE:PEP) and Coca-Cola (NYSE:KO) when it comes to beverage industry investments. However, Dr. Pepper is still a major player when it comes to beverages. It actually has the number one spot in the non-cola non-carbonated beverage market, with a 40% market share.
Dr. Pepper is also doing its part when it comes to catering to the health conscious consumer. As a result, it has introduced its low-calorie TEN brand and continues to expand its offering in this area. It also owns Snapple and is launching low-sugar Mott’s juice and Hawaiian punch drinks.
Its dividend yield is a healthy 3.2%. With a current yield that is well above its five-year average of 2.6%, income investors should embrace Dr. Pepper. Dr. Pepper’s beta is also the lowest of the five dividend stocks listed, coming in at only 0.2. At the same time, Dr. Pepper shares have outperformed both PepsiCo and Coca-Cola over the last ten years.
Safe Dividend Stock #5: NextEra Energy (NYSE: NEE)
NextEra Energy is the only company on my list that is not in the food business. But the utility company has been a great investment. Shares of NextEra have beaten the S&P 500 index by a factor of 2-to-1 over the last three years.
As the housing market continues to rebound, this should help further drive utility companies higher.
For example, Florida is a key market for NextEra. The company generates over 70% of revenues from its Florida Power & Light Company subsidiary, which provides electricity to customers in eastern and southern Florida. The rebound in the housing market means that more homes are occupied, and that’s helping the company earn more money.
Thanks to the fact that electricity has become a necessity every home, NextEra should perform relatively well regardless of the broader economy. Its beta is only 0.3. And it pays a 3.1% dividend yield.
Investors can’t predict what the stock market will do in a given year. Already this year, the S&P 500 has been as low as 1,740 and as high as nearly 1,890. And with the S&P 500 up nearly 150% over the last five years, it’s prudent to be cautious.
The best way to insulate your portfolio from volatility is by owning safe dividend stocks. These dividend stocks offer above average dividend yields and are less volatile than the broader market. All in all, that’s a great formula for building wealth over the long-term.
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