5 Stocks For a Stable, Dividend Portfolio

By Matthew McCall | December 01, 2011 AAA

Stability in this type of crazy, volatile market is something all investors are in search of. Add in an above-average dividend and some may consider it the Holy Grail.
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When looking for stocks that do not participate in the wild daily swings, typical result include sectors such as utilities, health care, consumer staples, etc. After sifting through the universe of stocks I came up with five stocks that meet the criteria of lower volatility and dividends above 2.5%.

Consumer Staples
During a good or bad market, companies that provided staples to the consumer, will typically move in a slow and steady path. This is because demand for the goods or services does not fluctuate dramatically.

One staple in the U.S., is the country's largest retailer, Wal-Mart (NYSE: WMT). The stock has been in a fairly narrow trading range for the last few years and is now 2% off a multi-year high. With a beta of 0.43, the stock has much less volatility than the S&P 500. The current dividend yield is 2.5%. What is even more impressive about WMT, is that the stock was up 10% in 2008 when the S&P 500 fell 38%. For investors who are concerned about a repeat, WMT is an option.

Other than Wal-Mart, the next big American brand is McDonald's (NYSE: MCD). The stock has been very strong in 2011, up 22% and only 1% from a new all-time high. MCD has an even lower correlation to the market, with a beta of 0.34. The dividend yield is 3.0%. The low-priced menu at MCD's and the convenience of the fast food, make it a staple in American society in good and bad times. In the last decade, the restaurant chain has gotten a majority of its growth from overseas, therefore, MCD is now as much a play on Asia, as it is on the U.S. (To know more about beta, read: Calculating Beta: Portfolio Math For The Average Investor.)

International
Smoking is a habit that some people are driven to, in the best and worst of times, and Philip Morris International (NYSE: PM) benefits from this phenomenon. The company supplies tobacco products, mainly cigarettes, to countries around the globe, excluding the U.S. The stock is currently trading at a historic high, after breaking out in late November. With a beta of 0.92, the stock will have a little more volatility than the staples mentioned, but a 4.1% dividend helps lessen the gyrations.

Utility
The largest water utility in the U.S. is American Water Works (NYSE: AWK), which supplies water and wastewater services to approximately 15 million people. The stock has held up well recently and is below 1%, from an all-time high. With a low beta of 0.27, the stock has very small correlation to the overall market. A 3.0% dividend is not high compared to other utility stocks, but is enough to attract investors into the stock.

Energy
Enbridge
(NYSE: ENB) is involved in the distribution and transportation of oil and natural gas in the U.S. and Canada. The pipeline company currently has a 2.8% dividend and a beta of 0.69. As oil prices rise and demand for energy products increases, ENB will be a direct beneficiary. The stock is currently 2% from an all-time high and the chart is one of the best in the sector.

The Bottom Line
The five stocks highlighted give investors a small, diverse portfolio to begin a long-term portfolio. Do not expect huge gains from the five stocks, but if the past is any indication of the future, the daily volatility should be much less than the overall market. With some solid dividend yields, it should help you sleep better at night. (For additional reading, check out: How To Pick A Stock.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.

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