3 Dividend Stocks With Low Volatility and Attractive Yields
Income investors in search of less risky stocks should consider these low-beta names.
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Maximizing returns while limiting risk is a challenge, but investors can help their chances by focusing on quality dividend growth stocks. One way to measure this diversifying component is through beta, which is a measure of volatility of a security against a benchmark.
In this case, we can measure beta of stocks against the S&P 500, which gives us a measure of volatility of each stock relative to simply owning the S&P 500 through an index fund.
Let's take a look at three stocks that not only have low-beta values, but high dividend yields and lower volatility than the benchmark index.
Protection From Volatility
Unum Group UNM is an insurance holding company that provides a broad portfolio of financial protection benefits and services. The company operates through its Unum US, Unum UK, Unum Poland, and Colonial Life businesses, providing disability, life, accident, critical illness, dental and vision benefits to millions of customers. The company generated $10 billion in revenue last year.
In late January, Unum reported financial results for the fourth quarter of 2023. It grew its operating earnings per share 25% over the prior year’s quarter, from $1.43 to $1.79, thanks to strong growth of sales and premiums in its core segments and favorable trends in the Group Disability category. Adjusted book value per share grew 13%.
Thanks to sustained business momentum, Unum provided guidance for 5%-7% growth of premiums and 7%- 9% growth of EPS in 2024. Unum has returned to growth mode thanks to an improvement in premium and investments, expense management, and a meaningful share repurchase program over time.
Unum has increased its dividend for 15 consecutive years.
UNM shares currently yield 2.8%.
Dividends Fit for a 'King'
Consolidated Edison ED is a holding company that delivers electricity, natural gas, and steam to its customers in New York City and Westchester County. The company has annual revenues of nearly $16 billion.
On February 15, Consolidated Edison announced fourth-quarter and full-year results for 2023. For the quarter, revenue decreased 14.6% to $3.44 billion, which was $224 million below estimates. Adjusted earnings of $346 million, or $1.00 per share, compared to adjusted earnings of $288 million, or $0.81 per share, in the previous year. Adjusted EPS were $0.03 better than expected.
For the year, revenue of $14.65 billion declined 6.7% year over year. Adjusted earnings of $1.76 billion, or $5.07 per share, compared to adjusted earnings of $1.6 billion, or $4.57 per share, in 2022.
As with prior quarters, higher rate bases for gas and electric customers were the primary contributors to results in the CECONY business, which is accounts for the vast majority of the company’s assets.
Future growth for a utility like ED is based on customer growth as well as rate increases. Average rate base balances are expected to grow by 6% annually through 2025. Consolidated Edison expects capital investments of nearly $28 billion for the 2024 to 2028 period.
The company is expected to produce EPS of $5.31 in 2024. It expects 5% to 7% earnings growth from 2024 levels through 2028. This is sufficient growth to support the company’s annual dividend increases.
ED has a long dividend growth history. On January 18, Consolidated Edison announced that it was raising its quarterly dividend 2.5% to $0.83. This is the company’s 50th annual increase, qualifying it as a Dividend King.
Just like most other utilities, thanks to its heavy investments in infrastructure, Consolidated Edison is typically allowed by the regulatory authorities to raise its rates. As a result, it enjoys reliable cash flows and can thus service its debt. One key competitive advantage for Consolidated Edison is that consumers do not curtail their electricity consumption even during the roughest economic periods, so the stock is resilient during recessions.
ED stock currently yields 3.8%.
A Gold Star for Consistency
Our third stock is Walmart WMT, the famous value leader in general retail. The company’s stores number more than 10,000 globally, and they collectively supply hundreds of millions of people every year with groceries, pantry items, household, automotive, and gardening products, and much more.
Walmart was founded in 1945, generates approximately $600 billion in annual revenue, and trades with a market cap above $400 billion.
Walmart posted fourth-quarter and full-year earnings on February 20, and results were quite strong. That, as well as good guidance, sent shares rising to a new high. Adjusted EPS came to $1.80, which was $0.15 ahead of expectations. Revenue was up 5.7% to $173.4 billion, which beat estimates by more than $4 billion.
The company noted global ecommerce sales soared 23% year over year, and sales in the advertising business were up 33%, including 22% for Walmart Connect in the U.S. Comparable sales in the U.S. rose 4% to top the estimate of 3.2%. Walmart sees revenue growth of 3% to 4% for this year.
The largest concern for Walmart is operating margins, as gross margins have remained flat while operating expenses have risen in recent quarters. This is the product of Walmart’s focus on building out its online business as well as integrating its acquisitions. We note that operating margins have improved and finished 2023 on a strong note. Comparable sales growth as well as gross margin expansion will support future EPS growth.
WMT is a long-term dividend growth stock. Walmart has increased its dividend for 51 consecutive years, making it a member of the Dividend Kings. The company’s payout ratio is quite low at 35% of earnings expected for fiscal 2024. The dividend should be very safe, even if earnings decline meaningfully.
Walmart’s competitive advantage is in its enormous size as it can buy and ship product at scales 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.
WMT stock currently yields 1.4%.
At the time of publication, Ciura had no positions in any stocks mentioned.