It's tough to know what qualifies as a "low-risk" stock anymore. Lots of big oil companies were seen as low-risk...until the big oil price collapse in 2014. General Electric was seen as low-risk...until a number of factors, including dividend cuts, cratered the stock in 2018. Even ultimate blue chip IBM has seen its share price fall by more than 25% over the last five years.
While no stock is immune to risk, three that currently seem to offer minimal risks to investors are Royal Dutch Shell (NYSE:RDS-A)(NYSE:RDS-B), Waste Management (NYSE:WM), and Enterprise Products Partners (NYSE:EPD). Here's why these three stocks are excellent choices for those looking for a little bit of calm in a stormy market.
Oil springs eternal
It's true: Royal Dutch Shell's shares took a beating during the oil price downturn of 2014, along with most of the rest of the industry. Even now, the oil major's stock is trading at about a 13% discount to its price from five years ago. You might be inclined to stay away from Shell if you're trying to avoid risk in your portfolio.
But Shell seems to have learned its lesson, and learned it well. After the oil price downturn, Shell aggressively cut costs in order to try to make its oil and gas drilling profitable at the new lower price points. And now that oil and gas prices are on the rise again, Shell is reaping the benefits. In its most recently reported quarter, Q4 2018, Shell's revenue and operating cash flow were higher than they had been since the downturn. Although not record-breaking, the company's net earnings were up by 46.7% over the year-ago quarter.
Throughout it all, Shell has maintained a best-in-class dividend that's currently yielding 6%. And thanks to its cost-cutting, even if oil prices tumble again, the company is in a much better position to weather the storm.
Trash springs eternal
One thing's for sure: We're never going to run out of stuff to throw away. And that's great news for North America's biggest trash hauler and landfill operator, Waste Management.
Unlike Shell's, Waste Management's shares have been on a tear, up about 150% over the last five years. That's impressive for such a large company, but it's also a testament to how well Waste Management has been doing. In 2018, volumes -- how much trash Waste Management picks up and puts into its landfills -- increased by 3.3%, which may not sound like much. But Waste Management has managed to squeeze more profits out of the trash it hauls, lifting adjusted per-share earnings by 30.4% over the prior year.
Another way Waste Management is different from Shell is that its dividend yield is much lower, at just 1.8%. That's largely because the share price has been shooting up so fast that the company's annual dividend increases haven't been able to keep pace. It's actually a great "problem" to have. Waste Management is an excellent choice for low-risk investors.
Pipelines spring eternal
Enterprise Products Partners is a master limited partnership (MLP), which means it may not be right for everyone. But MLPs usually offer fat yields, and indeed Enterprise's current 5.9% yield rivals Shell's. Enterprise has also increased its distribution for the past 58 (!) consecutive quarters. That's great news for income investors.
Like Waste Management's, Enterprise's business is pretty boring and predictable -- two qualities that often make for a low-risk investment. Enterprise owns and operates a network of pipelines that transport natural gas and refined petroleum products, as well as numerous processing and treatment plants for natural gas. The reason it's such a predictable business is the sheer number of long-term contracts Enterprise has with its customers. About 85% of the company's earnings come from such stable long-term contracts.
Enterprise is well known for its effective management, and management is predicting the company will spend $3.5 billion to $3.9 billion on expansion projects this year, which should help to keep the business growing at a comfortable clip. Management has also embarked on a $2 billion buyback program, which should also benefit investors.
Pipelines may be a boring business, but in Enterprise's case, they're also a low-risk, lucrative one.
Risk springs eternal
No investment, of course, is completely without risk. Unforeseen events, innovations by a competitor, and changing market environments can send even the safest of stocks downward. But if you're looking for low-risk companies in which to invest, Royal Dutch Shell, Waste Management, and Enterprise Products Partners represent some of the best opportunities in the market.