Last Updated on November 19, 2022 by Josh Arnold
Equity markets have been rough in recent months due to rising interest rates, high inflation, and fears about a potential recession in the coming quarters. Not all stocks are hit equally by equity market turmoil, however. Instead, some stocks tend to be more volatile than others due to their specific properties, such as pronounced vulnerability to recessions. However, low volatility stocks are attractive because they provide downside protection.
Conversely, some stocks are resilient during these times due to their sub-average volatility. For an investor looking to provide stability for their portfolio, low-volatility stocks can be a solid choice. This report will showcase three stocks that combine low volatility with a high dividend yield, making them worthy for conservative income investors.
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3 Low Volatility Stocks with High Yields
1: Verizon Communications (VZ)
Verizon (VZ) is blue-chip stock and one of the largest telecom companies in North America. It was created a little more than twenty years ago when Bell Atlantic and GTE Corp. merged.
Its most significant business unit by far, at around 75% of its revenue, is the wireless service that it provides to consumers and business customers. 98% of the US is covered by Verizon’s network, making it a carrier that is suitable for the vast majority of Americans. On top of that, Verizon also offers some other services, such as broadband and cable service.
Verizon reported its most recent quarterly results in April, showing revenue growth of 2% and earnings-per-share growth of 3%. That is not especially exciting, but for a telecom company, it’s not a bad result either — the industry is a low-growth industry, after all. Also, most investors do not buy Verizon and its peers for their business growth.
Instead, arguments for investing in Verizon include its resilience versus recessions and its safe and reliably growing dividend stream. Verizon has raised its dividend for 18 years in a row making it a Dividend Contender, with the annual dividend growth rate being in the 2% range. In addition, consumers do not cancel their phone plans during recessions, as this is a more or less essential spending item in today’s world.
The extensive infrastructure requirement in this industry, e.g., for 5G networks, also provides massive barriers to entry for potential new competitors. This point makes Verizon a very predictable business paying reliable dividends.
Today, according to Portfolio Insight*, Verizon offers a dividend yield of 5.0%. When we account for a low-to-mid-single-digit earnings-per-share growth rate in the coming years and some potential for valuation expansion, annual returns in the 10% range could be realistic. In addition, Verizon has a beta of just 0.4, meaning it moves by just 0.4% for each 1% move in the broad market, on average. We believe this low volatility, combined with its compelling yield, makes it a solid low-risk pick.
2: Western Union (WU)
Western Union (WU) is a leading domestic and international money transfer business. With more than half a million agents around the world and operations in more than 200 countries, Western Union can facilitate consumer-to-consumer and business payments between parties all around the globe.
Western Union’s most recent results were reported in April when the company announced that its Q1 revenue declined by 4% year over year. This decline was primarily the result of lower revenue contribution from Russia, Belarus, and some other Eastern European markets due to the current Russia-Ukraine war.
This headwind, combined with the sale of its business solutions segment that is forecasted to close later this year, is why Western Union will likely be less profitable this year compared to 2021. Still, Western Union is guiding towards earnings-per-share of $1.75 to $1.85 this year, which means that shares are currently trading for slightly less than 10X this year’s expected net profit.
Western Union’s core consumer-to-consumer business is a cash cow with a strong market position, as its wide net of agents makes it hard to compete with the service provider. On the other hand, this business is relatively mature, which is why not much growth is expected. Still, with the help of share buybacks, Western Union should deliver some earnings-per-share growth in the long run.
Today, according to Portfolio Insight*, Western Union offers a dividend yield of 5.49%. With a high dividend yield, not a lot of share price upside is required for solid long-term returns. Between the dividend, a low-single-digit earnings-per-share growth rate, and some multiple expansion upside, we believe that Western Union could deliver 9% annual returns going forward. Add in a beta of less than 1, and Western Union looks like a solid income pick today.
3: Walgreens Boots Alliance (WBA)
Walgreens Boots Alliance (WBA) is a leading retail pharmacy in the United States and Europe. In total, the company owns more than 13,000 stores across nine countries. Walgreens Boots Alliance is a Dividend Aristocrat with 46 years of uninterrupted dividend growth, almost making it a Dividend Champion.
In recent years, Walgreens Boots Alliance did not generate much growth, as earnings-per-share increased by only 5% since 2017. We believe that growth could improve going forward, however, as the weak growth rate was at least partially caused by the pandemic, which resulted in additional expenses for the company. With that headwind waning, earnings growth could be more robust in the coming years.
The company is buying back its shares rapidly, which will likely be critical in its future earnings-per-share growth. Between that and some business growth opportunities, we believe Walgreens Boots Alliance should be able to grow its earnings-per-share by around 5% a year in the long run. This percentage is lower than the earnings-per-share growth rate over the last decade and thus does not seem like an overly aggressive estimate.
Walgreens Boots Alliance currently offers a dividend yield of 4.6%, which will add meaningfully to its total return outlook. According to our model, Walgreens could deliver total returns in the 12% range when we also account for multiple expansion potential and the company’s forecasted earnings-per-share growth. In addition, Walgreens Boots Alliance has a pretty low beta of just 0.54, which is why the stock could provide some stability during uncertain times, as volatility should be subdued.
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Key Takeaways for 3 Low Volatility Stocks with High Yields
Going with Walgreens Boots Alliance, Western Union, or Verizon can result in less pronounced movements in one’s portfolio. But, at the same time, these companies offer compelling dividend yields that make them attractive to dividend and dividend growth investors.
Thanks for reading 3 Low Volatility Stocks wioth High Yields!You can also read Home Improvement Retailers: Lowe’s (LOW) vs Home Depot (HD) by the same author.
Disclosure: Members of the Sure Dividend team are long VZ, WU, and WBA.
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Josh Arnold has been covering financial markets for ten years, using a combination of technical and fundamental analysis to identify potential winners (and losers) early, particularly when it comes to growth stocks. He writes extensively on Seeking Alpha and is also a member of the Sure Dividend team.