When it comes to investing, we all dream of striking gold - picking that stock that skyrockets overnight and makes us millionaires. But let’s be honest, chasing high-risk, high-reward stocks can feel like riding a financial rollercoaster, and that’s not for everyone. For many investors, especially those looking for long-term stability, the slow-and-steady approach of low volatility stocks might be where the real magic happens.
Low volatility stocks are known for their consistent performance, even when the market gets a little shaky. These are the stocks that may not make headlines for wild gains, but they also don’t send investors scrambling for the exits during downturns. So why would someone choose low volatility investing over chasing those high-flying, volatile stocks? Let’s dive in!
Why Low Volatility?
Low volatility stocks are typically offered by companies that have been around for decades, with strong fundamentals and reliable cash flows. These companies tend to operate in industries that are less sensitive to the economic cycles, meaning they aren’t as likely to crash when the market takes a nosedive. So, if you’re looking for stable, dependable returns, low volatility stocks might be your perfect match.
Here’s why low volatility stocks make sense:
- Steady Returns: Instead of trying to time the market or hoping for a quick windfall, you’re more likely to see slow but reliable growth.
- Less Stress: With low volatility stocks, you’re less likely to experience the wild price swings that can make high-volatility stocks feel like a gamble.
- Perfect for Long-Term Investing: Stocks with a lower level of volatility have the potential to grow consistently over time without dramatic drops in value.
So, who are the heavy hitters in the world of low volatility? Let’s take a look at some of the most stable stocks you can consider for your portfolio.
McDonald’s
When you think of stability in the business world, it’s hard not to mention McDonald’s. This fast-food giant, founded in 1940, is practically a cornerstone of the global economy. What started as a single drive-in restaurant has exploded into a global empire, with over 38,000 locations worldwide.
McDonald’s is a classic example of a low volatility stock because:
- Stable Revenue Streams: People eat fast food in good times and bad, making McDonald’s relatively immune to economic downturns. During The Great Recession of 2007-2009, McDonald’s actually outperformed the S&P 500.
- Global Reach: With locations in more than 100 countries, McDonald’s isn’t tied to the economic health of just one region.
At the time of writing in October 2024, McDonald’s is a ‘Buy’ according to analysts, and offers an ‘Above Average’ dividend yield of 2.23%.
PepsiCo
PepsiCo isn’t just about soda—this company has a diverse portfolio that includes everything from snack brands like Frito-Lay to sports drinks like Gatorade. Founded in 1898, PepsiCo has become a global leader in the food and beverage industry.
Why is PepsiCo such a stable stock?
- Diversified Products: With a wide range of beverages and snacks, PepsiCo’s revenue doesn’t rely on just one product. If soda sales dip, snacks and other beverages pick up the slack.
- Dividend King: PepsiCo has raised its dividend payout annually for over 50 years, making it a ‘Dividend King’, a rare claim that not many companies can make.
PepsiCo is currently considered to be a ‘Buy’. It offers a high dividend yield of 3.62%.
Johnson & Johnson
Founded in 1886, Johnson & Johnson is one of the oldest and most reliable companies on the market. Specialising in pharmaceuticals, medical devices, and consumer health products, this company is a behemoth in the healthcare space.
Why is Johnson & Johnson a go-to for low volatility?
- Strong Brand Reputation: With a reputation for quality, Johnson & Johnson is a trusted name in households and hospitals alike, ensuring continued demand for its products.
- Resilient to Market Fluctuations: While other industries might see ups and downs depending on the economy, healthcare is a necessity, giving J&J a steady revenue stream.
Also a ‘Buy’ at the time of writing, Johnson & Johnson offers an ‘Above Average’ dividend yield of 2.88%.
The Coca-Cola Company
Coca-Cola is more than just a drink—it’s an iconic global brand. Founded in 1886, Coca-Cola has become synonymous with soft drinks and remains a dominant force in the beverage market, boasting products in over 200 countries.
Here’s why Coca-Cola stays so stable:
- Diversified Product Range: Coca-Cola isn’t just about soda anymore. It owns a wide variety of beverage brands, including water, tea, and sports drinks, keeping revenue streams diversified.
- Recession-Proof: People don’t stop drinking soda during tough economic times. Coca-Cola’s products are affordable and widely consumed, which keeps its profits stable even when other sectors struggle.
Coca-Cola is currently a ‘Buy’ as well, and its dividend yield is 2.6%.
Shell PLC
Shell is one of the largest oil and gas companies in the world, with a history that dates back to the early 1900s. While oil prices can be volatile, Shell has proven to be a relatively stable investment due to its global reach and diversified energy investments.
Here’s why Shell offers stability:
- Energy Demand: Despite the push toward renewable energy, oil and gas remain essential in today’s world. Shell’s massive infrastructure and global supply chain ensure it remains profitable.
- Dividends: Shell has a strong record of paying dividends, making it a good option for investors seeking regular income.
Analysts say Shell is a ‘Buy’ right now, and they also think it might increase in value by 21.21% in the next year. What’s more, this stock pays dividends too, with a yield of 4.01%.
Verizon Communications Inc
Verizon is one of the largest telecommunications companies in the US, offering wireless services, broadband, and digital television. Founded in 1983, Verizon has become a staple in the telecom industry.
Here’s why Verizon is a low volatility stock:
- Essential Service: In today’s connected world, internet and phone services are necessities, not luxuries. This makes Verizon’s business model highly resilient to economic changes.
- Reliable Cash Flow: People pay their phone and internet bills every month, providing Verizon with consistent, predictable revenue streams.
Verizon is also currently rated as a ‘Buy’. This stock’s dividend yield is 6.01%, the highest of all the stocks in this list.
Pfizer Inc
Founded in 1849, Pfizer is one of the largest pharmaceutical companies in the world. Known for life-saving drugs and vaccines (including a certain COVID-19 vaccine you may have heard about), Pfizer has a long history of stability in the market.
Why is Pfizer a low volatility stock?
- Healthcare Industry: Like Johnson & Johnson, Pfizer benefits from being in the healthcare sector, where demand is constant and often unaffected by economic downturns.
- R&D Powerhouse: Pfizer’s ongoing investment in research and development keeps its pipeline full of new drugs and treatments, ensuring long-term growth.
A ‘Buy’, Pfizer’s dividend yield is 5.59%. It’s also predicted to increase in price by 11.10% in the next 12 months, offering another way for investors to potentially profit.
Conclusion: Low Volatility, High Peace of Mind
If you’re the kind of investor who wants reliable growth without the sleepless nights that come with watching volatile stocks, low volatility investing might be for you. Companies like McDonald’s, PepsiCo, Johnson & Johnson, and Verizon might offer more stability through diversified products, strong brand loyalty, and consistent cash flows.
These businesses have been around for decades (some over a century!) and have proven that they can weather market storms, making them excellent potential choices for investors looking for a smoother ride. So, if you’re keen to take a slow and steady, long-term approach to investing, consider adding some of these low volatility stocks to your portfolio.
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All stock information was correct at the time of writing.
