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Johnson & Johnson (JNJ), The Procter & Gamble Company (PG): How To Invest Despite Long-Tail Risk Part II

Investors have been shifting out of investments that protect against rare, but catastrophic risks. With the market near all time highs, those risks are still very real. Investing in low beta stocks like Johnson & Johnson (NYSE:JNJ), McDonald’s Corporation (NYSE:MCD), and The Procter & Gamble Company (NYSE:PG) can help protect against some of that downside.

Black Swans

According to Reuters, hedge funds designed to protect investors from large, unexpected losses are seeing outflows. These types of funds became very popular after the 2007 to 2009 recession and associated market crash. Indeed, many believed the housing crisis that led to this turbulent period was a black swan event. As time has passed, however, investors’ concern about another drop seems to be diminishing.

However, some market watchers, including mutual fund manager John Hussman, continue to warn that markets are overstretched. Hussman’s data driven analysis recently led him to write: “…stocks are not cheap, but are instead strenuously overvalued. The speculative reach for yield, encouraged by the Federal Reserve, has created another bubble – which is not recognized as a bubble only because distorted profit margins create the illusion that stocks are reasonably valued.”


There’s no way to avoid steep market drops except to be out of the market. Unfortunately, you don’t receive dividend payments if you don’t own dividend paying stocks. So, being out of the market isn’t an option for income investors. One way to soften the blow of a potential drop is to focus on low beta dividend payers.

Beta is a measure of sensitivity to the broader market. A beta of one suggests that a stock will move in lockstep, up and down, with the overall market. A beta below one means that a stock is likely to move less than the market. Here are three large companies with betas below 0.5:

Johnson & Johnson

Johnson & Johnson (JNJ)Johnson & Johnson (NYSE:JNJ) operates in three businesses: consumer products, medical devices, and pharmaceuticals. It is an industry leader in each. Although the shares have started to trend up of late, the last decade or so has seen them stuck in a broad trading range. Patent expiration concerns in the pharmaceutical business were largely to blame for that. However, the company has recently achieved some notable product launches and has a decent pipeline. So, this segment appears to be doing much better.

Consumer products, meanwhile, has been hampered by production problems and recalls. While never a good thing, Johnson & Johnson (NYSE:JNJ) appears to have the issue under control. This laggard group should again start to contribute. And, the medical devices business just consummated a big acquisition that should help drive sales and earnings.

In all, Johnson & Johnson (NYSE:JNJ) appears set to prosper over the near term. Moreover, it has a near 3% dividend yield, a long history of annual dividend increases, a world-wide business, and a moderate level of debt. Add in a low beta and this diversified healthcare giant is a good option for just about any investor.


McDonald’s Corporation (NYSE:MCD) also has a yield in the 3% area and a very low beta. However, as a fast food giant, it may be at the exact opposite side of the health spectrum.

The burger giant has well over 30,000 locations across almost 120 countries. About 80% of its restaurants are franchised. It has a leading position in developed markets and is building its business in emerging markets. Note that the franchise model reduces risk, as the company functions as a toll taker for franchisees taking on the store opening risks. A big benefit in emerging markets.

McDonald’s isn’t new to emerging markets, however. While mid-priced and expensive restaurants are a tough sell in relatively poor countries, the Golden Arches sells meals that are fairly inexpensive. This has allowed the company a first-mover advantage. Moreover, quick serve burgers are desirable across the entire wealth spectrum. So, as emerging markets become wealthier, McDonald’s top and bottom lines should benefit.

Although McDonald’s shares aren’t cheap, it is a great company and still offers a notable dividend yield backed by a long history of dividend increases.

Procter & Gamble

The Procter & Gamble Company (NYSE:PG) has been taking heat lately for an ill fated attempt to push into emerging markets. Unlike McDonald’s, the company primarily sells premium products. That’s a hard sell in countries where most of the population is relatively poor.

That said, the company is an industry leader in the consumer products space. For example, it has 25 brands that each generate more than $1 billion a year in sales. Moreover, it is broadly diversified across product categories and has a long history of innovation. It’s got problems, but its far more likely to figure them out than succumb to them.

A low beta, a dividend yield a little under 3%, and a restructuring plan to deal with its recent issues should interest most investors.

Preparing for the Worst

While you can’t fully protect yourself from a market decline, buying industry leaders with low betas can help soften the blow. Each of the companies here fits that bill. Read Part 1 of this two part article for more low-beta ideas.

The article How To Invest Despite Long-Tail Risk Part 2 originally appeared on and is written by Reuben Brewer.

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