“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.
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.
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.