[Updated on June 14, 2018 by Shauvik Haldar]
In a perfect world, investors would increase their returns while decreasing risk. Unfortunately, this is an almost impossible feat in most cases, as higher risk often translates into higher rewards. The same is true for dividend investing, as many investors would love to invest in high-yielding securities that come with low volatility. This too is a tall order, as securities with higher yields tend to be riskier choices. Many conservative investors often seek out safe dividend stocks and high dividend low risk stocks. Below are some tips on how to find high yield, low volatile stocks.
In an effort to help investors find high yielding choices that do not come handcuffed with hefty volatility, we present a list of 10 stocks that have strong dividend yields and betas below 1, meaning that they tend to be less volatile than the broad market:
|Stock||Annual Div Yield(%)||36-Month Beta|
|Frontier Communications Corporation (FTR )||24.03%||0.60|
|Arlington Asset Investment Corp (AI )||19.05%||0.65|
|Consolidated Communications Holdings Inc (CNSL )||13.69%||0.74|
|Washington Prime Group Inc (WPG )||13.62%||0.66|
|New Senior Investment Group Inc (SNR )||13.54%||0.55|
|NGL Energy Partners LP (NGL )||13.45%||0.97|
|Windstream Holdings, Inc. (WIN )||13.42%||0.07|
|Eagle Point Credit Co. Inc (ECC )||13.20%||0.18|
|Ellington Residential Mortgage REIT (EARN )||12.99%||0.39|
|Enduro Royalty Trust (NDRO )||12.85%||0.27|
The scatterplot below gives you a different view on the aforementioned companies, allowing you to visually compare the firms. We have added the S&P 500 ETF (SPY) in for comparison. Note that the lower the beta, the less volatile the fund.
Please note this data is as of June 4, 2018.
Dividend Yields & Traps
Income-focused investors should invest in stocks with an attractive yield, but it is important to be cautious while chasing yield. It may be tempting to invest in a stock with an extremely high yield, but high yields are often too good to be true. Below are some factors to consider when analyzing dividend yield.
It is important to keep in mind that dividend yield is directly impacted by a company’s share price. Therefore, if a stock price tanks, the dividend yield will go up. For example, during the 2008 recession, homebuilder stocks plunged, but their dividend yields shot up. At a glance, the dividend yields of those stocks appeared to be attractive, but they were the result of falling share prices.
The payout ratio compares a company’s earnings with its dividends paid. For more information, check out The Truth About the Dividend Payout Ratio.
For investors unsure if a dividend yield for a specific stock is reasonable, comparing its yield to its peers can be helpful. Users can find the average dividend yields for each sector here. For more information, check out Comparing Average Dividend Yield by Sector.
Dividend Friendly Industries
Sometimes dividend yields may seem high simply because they are part of dividend friendly industries. Industries like telecommunications, utilities and real estate investment trusts are known for attractive dividends.
Finding Low Volatility
There are several metrics investors can use to find stocks with low volatility. Below is an overview of the metrics investors can use to manage risk.
Beta compares a stock’s sensitivity to the overall market. For example. the market as a whole has a beta of 1. Therefore, a stock with a beta less than 1 is less violate compared to the entire market, while a stock with a beta higher than 1 will have more volatility.
Investors can analyze a stock’s historical volatility to get a better idea of its future volatility. Its historical volatility will provide a stock’s past price movements.
Standard deviation measures how much stock could vary from its average return. This is also a great way of analyzing historical volatility.
For more information, check out A Dividend Investor’s Guide to Measuring Risk.
The Bottom Line
While there will always be risks when it comes to investing, conservative investors are able to defend against some of these risks by finding stocks with lower volatility and low beta. While choosing an investment, it is also important to pay attention to dividend yields and the reasoning behind them.