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Investors have different risk profiles, which decide the percentage of growth and high yield dividend stocks in the portfolio. However, going too aggressive with high-beta or growth stocks can result in significant capital erosion in a high volatility or bear-market scenario.
At the same time, having an ultra-conservative portfolio is likely to result in negative returns when adjusted for inflation. In particular, in a scenario when inflation is at multi-decade highs.
The best strategy is to have a delicate diversified balance of high and low-beta dividend income stocks in the portfolio. Given the current macroeconomic scenario, it makes sense to be slightly overweight on low-beta dividend stocks.
Inflation remains high, and policymakers have been aggressive in rate hikes. Uncertainties related to GDP growth and rising geopolitical tensions have added to the concerns.
Amidst these headwinds, low-beta dividend stocks provide some stability to the portfolio and offer a robust dividend yield, which implies steady cash flow for investors.
4 Best Low-Beta Dividend Stocks For Your Portfolio
Low-Beta Dividend Stocks List
Here are the four low-beta best dividend stocks worth holding long-term in your portfolio.
Without a doubt, Pfizer (NYSE: PFE) is among the top picks when considering low-beta dividend stocks for the portfolio. On a 12-month basis, PFE stock has remained sideways, and I believe it’s a good accumulation opportunity.
To put things into perspective, the low-beta dividend stock offers a robust dividend yielding 3.5%. Furthermore, the stock trades at a forward price-to-earnings ratio of 7.0. At the current valuation, the downside seems to be capped.
Pfizer reported a robust free cash flow of $29 billion in business in 2021. The surge in FCF was primarily due to the sale of the vaccine against covid-19. On a relative basis, vaccine sales will decline in 2022 and 2023.
However, Pfizer has the robust financial flexibility to invest in growth. The company has been aggressive in acquisition in the last few quarters.
This has helped Pfizer further deepen the product pipeline. As drugs in various trial stages are commercialized, there is sustained growth visibility. The company expects to invest $10 to $12 billion towards research and development for the current year.
It’s also worth noting that Pfizer has a strong presence in emerging markets with significant growth potential. Overall, Pfizer stock is likely to remain a long-term value creator. At current valuations, I expect healthy capital gains besides the cash inflow from dividends.
An important observation about the U.S. economy is that it is consumption driven. Retail spending is a critical part of consumption expenditure. It’s, therefore, not surprising that policymakers focus on boosting spending in an economic downturn.
Given this fact, holding one or more retail stocks in the long-term portfolio is essential. Walmart (NYSE: WMT) is a quality low-beta dividend stock worth considering.
It’s also important to note that the retail sector faces near-term headwinds due to inflation and aggressive contractionary monetary policies. WMT stock has been an under-performer with negative returns of 10.5% in the last 12 months. Depressed valuations present a good opportunity for long-term exposure to this 1.68% dividend yield stock.
From a business perspective, Walmart has been building omnichannel sales capability. This is likely to help in boosting same-store sales.
Further, the company has been increasing its presence in emerging markets. This will support long-term growth. Last month, the company acquired Massmart, a South African retailer. Walmart also has a presence in India through the acquisition of Flipkart.
It’s also worth noting that free cash flows have remained healthy even with margin compression. Walmart is positioned to create sustained shareholder value through dividends and share repurchases.
Lockheed Martin (NYSE: LMT) is another quality low-beta dividend stock worth holding in the portfolio. Over 12 months, the stock has trended higher by 16%, with a current dividend yield of 2.68%. The positive momentum will likely sustain LMT stock.
The critical point is that global geo-political tensions have escalated with several friction points. Therefore, holding a defense stock in the portfolio is essential. LMT stock is a top pick and also has a low beta.
Most of the European countries are short of the NATO defense spending target. With the escalation in tensions related to Russia, defense spending will increase. This is likely to benefit Lockheed Martin in the next few years.
Regarding revenue visibility, Lockheed has an order backlog of $134 billion. Given the industry outlook, the order backlog will swell in the coming years. Lockheed has already provided guidance of $6.0 billion in free cash flow for 2022. For the next year, a similar FCF is expected.
Therefore, dividends are sustainable. At the same time, there is ample flexibility to invest in organic and acquisition-driven growth.
AT&T (NYSE: T) stock is worth adding to the portfolio among undervalued low-beta dividend stocks. After the spin-off of the media division, T stock has been sideways to lower. However, business developments have been positive, and a rally is impending.
From a valuation perspective, T stock trades at a forward price-to-earnings ratio of 6.8. At the same time, the low-beta dividend stock offers an attractive dividend yield of 6.46%. Considering the cash flow potential, dividends are sustainable.
It’s worth noting that AT&T has been reporting sustained growth in post-paid phone and fiber subscribers. With some significant investments in 5G in the last few years, user growth is likely to sustain. AT&T has also witnessed growth in post-paid ARPU on a year-over-year basis. This will be likely to help in EBITDA margin expansion.
Another reason to like AT&T is its deleveraged balance sheet. With the proceeds from the spin-off, the company has already reduced the debt burden. For 2022, the company has provided a free cash flow guidance of $14.0 billion. This will allow AT&T to reduce debt further.
AT&T also reported a capital investment of $6.7 billion for Q2 2022. The annualized capital expenditure is likely to be more than $20 billion. These investments can potentially translate into top-line growth and cash flow upside potentially resulting in further dividend growth.
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