Volatility is an essential aspect of investing as it is a proxy for risk. The volatility of an equity or portfolio against a benchmark is called beta, with a beta of 1.0, meaning that the stock moves equally with the S&P 500 Index. Interestingly, low beta stocks have outperformed the market in the past, and a long-term study suggests that not only do low beta stocks not underperform the broader market over time, including all market conditions, they actually outperform. This outperformance over time, with lower risk, is compelling for investors. A small value of beta, less than 1.0, indicates a stock that moves in the same direction as the benchmark but with smaller relative changes.
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3 Low Beta Dividend Stocks for 2023
This article will discuss three particularly interesting picks from an extensive list of dividend stocks with low betas.
Federal Realty Trust (FRT)
Established in 1962, Federal Realty operates as a Real Estate Investment Trust (REIT), owning and renting out retail real estate properties. It focuses on owning, developing, and redeveloping shopping centers in densely populated coastal markets with favorable income and demographic trends. Federal Realty has an impressive dividend history of increasing its dividend for 55 consecutive years, earning it a place as a Dividend King. In addition, it is a noteworthy stock as one of only three REITs on the list of Dividend Aristocrats and Dividend Kings and a low beta stock.
With a portfolio of over 105 properties and 3,100 tenants, no single tenant provides more than 3% of its annualized base rent, providing insulation against retail bankruptcies. In addition, the company creates value for shareholders by investing in its current and new properties at attractive rates of return, driving rental income growth, and keeping its assets fresh and appealing.
Although not recession-proof, FRT has performed well during economic downturns due to diversification, the strength of its markets, quality tenants, and properties. FFO-per-share grew by 6.4% YoY in 2008, declined by 8.8% in 2009, and grew by 10.5% in 2010 during the last major recession, providing confidence in its long-term dividend growth streak.
With a current dividend yield of over 4%, a rock-solid balance sheet, and good long-term growth prospects, FRT is definitely a low beta dividend stock to consider.
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LyondellBasell Industries (LYB)
LyondellBasell Industries N.V., headquartered in Houston, Texas, is a chemical and refining company with six business units: Olefins and Polyolefins – Americas; Olefins and Polyolefins – Europe, Asia, International; Intermediates and Derivatives; Advanced Polymer Solutions; Refining; and Technology. The company operates in various countries, including the United States, Mexico, Germany, Italy, France, Japan, and China, providing geographic diversification that helps protect it from area-specific issues. For example, while energy prices in Europe currently affect operations in countries such as Germany and France, U.S.-based operations benefit from advantaged energy prices.
LyondellBasell has experienced considerable business growth in recent years, with a 190% increase in earnings-per-share over the last decade based on the $14.60 consensus estimate for fiscal 2022. However, the company’s earnings-per-share have had their ups and downs due to factors such as crack spreads and demand for specific chemical products. As a result, the company’s growth can be cyclical rather than consistent.
It is currently facing some stiff headwinds. As management stated on its latest earnings call:
“During the third quarter, as you would expect, our team remains very focused on cash generation while navigating the well-known, very challenging environment. LyondellBasell’s business portfolio faced headwinds from rising costs and weaker demand at the same time.”
Despite reduced demand and increased costs, LYB has a strong balance sheet, plenty of liquidity, and remains profitable. Furthermore, polyethylene demand is recession-resistant, giving the company confidence in its ability to weather a recession.
LYB is also focused on improving operating efficiencies and cost-cutting initiatives to generate double-digit EBITDA growth within three years.
The company has a very positive long-term growth outlook with the ability to deploy capital at high rates of return and then return excess cash to shareholders via generous buybacks and dividend growth.
With a current dividend yield of 4.9% and expected substantial buybacks and dividend growth this year, LYB is a low-beta stock that could deliver outsized total returns over the long term.
International Paper Co. (IP)
International Paper is a global manufacturer of industrial packaging and cellulose fiber. Although it is seeking growth opportunities in Europe and Asia, the majority of its net sales, around 80%, come from North America, reducing its exposure to geopolitical and currency risks. Additionally, its industrial packaging segment is responsible for over 80% of its revenue, making it the most critical business segment.
The company has a strong balance sheet, with a BBB credit rating from S&P and a Stable outlook. It has well-managed leverage in relation to its target range and significant backup liquidity in billions of dollars in cash. Additionally, the company has a fully funded pension plan and limited medium-term maturities of about $1.3 billion due over the next decade. As a result, International Paper can deploy capital opportunistically without concerns about its balance sheet.
International Paper is known for its shareholder-friendly capital allocation practices, including share buybacks and a generous dividend payout. Although the company reduced its dividend by 10% in October 2021, it was part of a broader effort to streamline the business and focus on growth. Additionally, the forward dividend yield remains attractive at over 5%, and management appears committed to maintaining this payout level.
International Paper is not expected to see significant revenue growth in the future. However, as a crucial component of the global economy, the industry should remain stable. Furthermore, International Paper can potentially drive shareholder value through economies of scale and innovation.
With its low beta, dividend yield, and buyback policy, International Paper is definitely a stock worth considering.
Conclusion on Low Beta Dividend Stocks
When selecting investments, investors need to consider risk, and securities with lower Beta may offer better risk-adjusted returns. Beta can help identify securities that produce more or less volatility than the broader market, and investors can use it to diversify their portfolios. Between FRT, LYB, and IP, investors can invest in low beta stocks that offer attractive and safe dividends that are also likely to grow well into the future.
Disclosure: Members of Sure Dividend Team are long the stocks in this article.
Disclaimer: The author is not a licensed or registered investment adviser or broker/dealer. He is not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.
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Bob Ciura is President of Content at Sure Dividend. Bob has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. Bob received a bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.