Instead of popular but volatile stocks, owning under-the-radar defensive gems will let you sleep at night.
Hype comes at a price. High-profile stocks tend to have
pricey valuations and short or inconsistent track records. Wild price swings
can make it hard to stay invested if you can't deal with nail-biting
volatility. Instead, consider some lower-profile and less-volatile dividend
stocks.
"Boring is beautiful," says Jim Tierney, chief
investment officer of concentrated U.S. growth at fund company
AllianceBernstein. "These under-the-radar stocks that have very
predictable businesses – they work."
Sleep-tight stocks tend to be established firms with a
competitive advantage in slow-growth industries. They generate predictable
sales and profit growth, no matter whether the economy is booming or
contracting. They tend to be financially stable, with strong balance sheets,
which reduces the odds that they'll get into financial trouble and allows them
to pay dividends.
"Steady Eddie" dividend stocks take the edge off
investing, says Nick Kalivas, Head of Factor and Core ETF Strategies, for the
ETFs & Indexed Strategies business at Invesco. "Slow and steady wins
the race."
Most of the time, the less volatile the business, the less
volatile the stock. One of the hallmarks of a "boring" stock is a low
beta, which measures a stock's volatility relative to the overall market. The
S&P 500 has a beta of 1. So, a stock with a beta of 0.90 moves 10% less in
price than the broad market gauge. Just be aware that volatility works in two
directions. Less-volatile stocks won't reap the gains in up markets that their
jumpier cousins will, and it's worth noting that the market’s rebound from last
year's bear market has left low-volatility indexes in the dust.
But you might be ready to swap a ride on the roller coaster
for some steadier – if more incremental – gains. We found six low-profile
dividend stocks with potentially high rewards.
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