Investing can be a very stressful thing if you pick the wrong stocks. For low-risk investors, that means you need to step back and be more selective when researching stocks for your portfolio. A good starting point is to pick dividend-paying stocks like Dominion Energy, Inc. (D 0.31%), Ventas, Inc. (VTR -0.45%), and Hormel Foods Corporation (HRL 14.56%). That said, there's more to like about this low-risk trio than just the income they produce. Here's why these are three great stocks for low-risk investors.
1. This energy giant wins either way
Dominion Energy is one of the largest utilities in the United States. Its businesses include generating electricity, transmitting electricity, and natural gas transmission and delivery. These are largely regulated businesses in which the company gets a monopoly in exchange for regulators setting the prices it can charge -- practically guaranteeing positive economic returns. The rest of its assets are mostly fee-based and under long-term contracts. It's a stable business built around products we simply can't live without.
The company has an investment-grade credit rating of BBB+ and has increased its dividend every year for 15 consecutive years. The yield is around 5%, more than twice what you would get from an S&P 500 Index fund today. However, the beta, a measure of relative volatility, is just 0.30. That suggests Dominion's stock is 70% less volatile than the broader market.
That said, Dominion is in the middle of an acquisition, as it attempts to buy a smaller utility that's struggling financially. With or without the deal, it expects to grow earnings by 6% to 8% per year through 2020, backed by capital spending of as much as $4.2 billion per year. And the dividend is projected to expand at 10% per year, handily outpacing the historical rate of inflation growth, and thus protecting your buying power over time. Investor concerns about the acquisition have created a buying opportunity for this low-risk, high-yield utility.
2. Demographics are destiny
Ventas is one of the largest and most diversified healthcare real estate investment trusts (REITs) in the United States. Its portfolio includes senior living facilities, medical offices and research buildings, hospitals, and rehabilitation and acute care facilities. The vast majority of its revenues come from private pay assets that won't be affected by changes in government healthcare programs.
Ventas has an investment-grade credit rating of BBB+ and has increased its dividend for eight consecutive years. It held the dividend steady during the deep 2007 to 2009 recession, otherwise the streak would be longer. The yield is a robust 6.3%, three times the broader market. The dividend has historically grown in the mid-single-digits. The REIT's beta, meanwhile, comes in at around 0.10, suggesting it's roughly 90% less volatile than the broader market.
The entire REIT sector has been suffering lately, but Ventas is focused on a niche that will see huge growth in the years ahead -- regardless of what happens in the stock market. Its properties generally serve customers that are 65 and older, an age group that is currently swelling as baby boomers join its ranks. That trend will only accelerate, with another 20 years before it peaks. You can rest easy collecting Ventas' dividend while you wait for the demographics to play out.
3. Food, dividends, and expansion
Hormel Foods is the last stock on this list. It's probably best known as the maker of SPAM, but it has 35 brands that hold the No. 1 or No. 2 spot in their category. It sells products in virtually every section of the grocery store, from the deli to the frozen food aisle. And it operates in both the retail and food-service sectors. Although Hormel is focused around proteins like meat and nuts, its business is well diversified.
Hormel has an investment-grade credit rating of A and an incredible 52-year streak of annual dividend increases. It's a Dividend Aristocrat, placing it in rare company. The food maker's 2.1% yield is modest compared to the yields of Dominion and Ventas, but that's the high end of Hormel's historical range. And the dividend has tended to grow by percentages in the high teens each year, far outdistancing the ravages of inflation. Hormel's beta, meanwhile, is roughly 0.45, suggesting the stock is around half as volatile as the broader stock market.
Investors have pushed Hormel's shares lower recently because changing consumer tastes have been a headwind. However, Hormel has a been adjusting, selling slow-growth brands (like Diamond salt) and buying higher-growth brands (such as Wholly Guacamole). More recently, it's been augmenting its deli exposure, an area of the grocery store that has been growing four times faster than the grocery average. It has also been reaching further into the international arena (via a foundational acquisition in South America), which only makes up a tiny 6% of the business today. This is a cornerstone investment option for a low-risk portfolio, and now is the time to put it in the cart.
Be picky and sleep well
When you start looking for low-risk stocks, you need to think about multiple things. A good place to start is dividend payers that have long histories of rewarding investors with annual increases, which includes Dominion, Ventas, and Hormel. This will give you something other than the stock market to watch, as you monitor the quarterly checks flowing into your brokerage account.
After that, you need to look at the businesses backing those dividends, seeking out financially strong companies that are, well, boring. This trio easily fits that description. Add in a look at a stock's historical volatility relative to the market (beta), and you complete the picture. With low betas, boring dividend payers Dominion, Ventas, and Hormel are all worth a deep dive for low-risk investors today.