“The return to volatility was [caused by] increased investor anxiety over central bank policy,” according to BlackRock. Since the Fed’s exit from its easy money policies is going to be complex and contentious, volatility could become more routine. In that environment, investors should focus on low-beta stocks like Altria Group Inc (NYSE:MO), Family Dollar Stores, Inc. (NYSE:FDO), and Waste Connections, Inc. (NYSE:WCN).
Safe Haven in Choppy Waters
Beta is a measure of relative volatility. A company with a beta of one would be expected to move in lock-step with the broader markets. A beta of 0.5, however, indicates a stock that has historically moved only 0.5% for a 1% move in the market.
While that’s not compelling when the markets are heading steadily higher, it becomes a lot more interesting when markets are volatile or heading lower. With stocks near all time highs, now is a good time to consider low-beta stocks.
Addiction
Altria Group Inc (NYSE:MO)’s beta is just under 0.5 and it has a notable dividend yield of around 4.7%. The yield is backed by a history of regular annual dividend increases. These facts alone make the company interesting. But there is so much more to Altria’s story.
The company is the largest domestic manufacturer of cigarets, including the powerful Marlboro brand. It also sells smokeless tobacco products, which are increasingly popular. Although the company spun off its growing foreign operations, the mature U.S. tobacco market is largely protected by regulation. So, despite the slow decline profile, price increases and an addictive product should lead to growing dividends.
Although the bottom line has been a little volatile, the company is being run to return value to shareholders via dividends and stock buybacks. In fact, despite intense competition and smoking’s horrible public image, the top line has increased in all but one year since the spin off of the foreign operations and the dividend has been increased each year.
An addicted customer base isn’t going to jump ship because of a market sell off. So, with a high yield and a low beta, Altria Group Inc (NYSE:MO) might be a good place for income investors to be when choppy weather arrives.
Selling Cheap
Family Dollar Stores, Inc. (NYSE:FDO) runs a chain of more than 7,500 stores across 45 states. The company’s target audience is less affluent shoppers. Its stores sell everything from food to toiletries and are generally small (around 10,000 square feet) and local. That means that customers can easily make a trip to a Family Dollar store to pick up just an item or two.
This is an important factor that separates Family Dollar Stores, Inc. (NYSE:FDO) from cheap-giant Wal-Mart. While Family Dollar often charges more for its wares, it can get away with it because customers don’t have to make a special trip to a regional store. So the company has happily grown in the shadow of the retail giant.
With a beta below 0.5 and a modest dividend yield (1.6% or so), Family Dollar Stores, Inc. (NYSE:FDO) should interest those concerned about volatility. The stock has been on a nice run, however the company still has room to keep expanding as it enters new market and, because of its hyper local business model, broadens its reach in existing ones. So Family Dollar Stores, Inc. (NYSE:FDO) would be a good option for a growth-minded investor seeking a stock that has historically avoided the market’s volatility.
Gotta Get Rid of the Trash
Waste Connections, Inc. (NYSE:WCN) has the lowest beta of the three stocks here, at less than 0.3. The company operates in the highly competitive trash business, but has taken a unique approach. It essentially sidesteps the markets with the most competition and focuses on less developed suburban and rural markets.
The company’s top line has grown steadily for a decade, with the bottom line following a roughly similar path. In fact, Waste Connections, Inc. (NYSE:WCN) recently initiated a dividend and has been increasing it annually (it has a miserly 1% or so dividend yield). The big take away from this is that the company weathered both the 2007 to 2009 recession and housing bust in stride.
A recent acquisition that moves the company into the energy drilling waste disposal sector should be good for future growth. But the real reason to like Waste Connections, Inc. (NYSE:WCN) is that it provides a necessary service in low competition markets. Like Family Dollar, however, it is most appropriate for growth investors looking for lower volatility fare, since solid performance has led to a pretty steady ascent over the years.
Low Beta and Stuff People Buy
Each of the companies above has a low beta. That can help keep a portfolio’s risk profile down. However, Altria Group Inc (NYSE:MO) selling an addictive substance makes customers sticky and promotes top line stability. That makes it a nice option for income seekers. Family Dollar, meanwhile, sells everyday items that people buy, with a focus on the less affluent. If a market sell off is accompanied by a recession, its business should hold up well. Waste Connections, Inc. (NYSE:WCN) takes out the trash, a nasty job that never goes out of style.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article BlackRock Expecting Heightened Volatility, Go Low Beta originally appeared on Fool.com.
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