We all want to beat the market. That's a given. But sometimes I don't want the risk that comes with high-flying technology stocks. I want to sleep well at night and make a nice return on my money.

Is it possible to beat the market with low-risk stocks? I think it is. Take a look at this table.

10-Year Annual Return

Five-Year Beta

Archstone -Smith Trust (NYSE:ASN)



Fifth Third Bancorp (NASDAQ:FITB)



Wells Fargo (NYSE:WFC)



North Fork Bancorp (NYSE:NFB)



Kinder Morgan (NYSE:KMI)



Vornado Realty Trust (NYSE:VNO)



S&P 500 Index



These companies have outperformed the S&P 500 over the past 10 years by a wide margin. Furthermore, they carry less risk than the S&P 500 if we measure risk with a five-year beta. Beta indicates stock price volatility relative to the market. A company with a beta less than 1.00 is less volatile than the market. Low beta stocks probably won't experience huge price swings so they won't keep you up all night.

What can we learn?
These low-risk market beaters have three things in common.

  1. They are in stable, mature industries. The list includes three banks, two real estate investment trusts (REITs), and one oil and gas transporter. None of these companies make high-tech gizmos. Their business models may be sleepy, but their returns have been exceptional.
  2. They have a long history of paying dividends. Each of these companies currently has a dividend yield greater than 3%.
  3. Ten years ago, they all had market caps of around $1 billion or more. You don't always have to go searching for obscure micro caps and penny stocks to beat the market.

Put the numbers to the test
Imagine the year is 1996. You have a choice: Invest in our portfolio of sleepy stocks above, or invest in cutting-edge technology companies such as Microsoft, Intel, AMD, and Cisco. What do you do?

It turns out that the annual returns for the tech stocks over 10 years are almost identical to the returns from those boring banks and REITs. But notice the betas. They are much higher than 1.00, indicating more volatility than the stock market (and much more volatility than our sleepy portfolio). Same returns, but more volatility? Who needs that?

10-Year Annual Return

Five-Year Beta




Cisco Systems






Advanced Micro Devices



Here's the kicker: If you reinvest your dividends over those 10 years, your returns from the sleepy portfolio would be significantlybetter. That's the power of investing in steady dividend payers.

Foolish bottom line
Keep in mind that beta is just one indicator of risk. Low beta stocks can blow up just like stocks with high betas, and beta is inherently backward looking. Nevertheless, there are great stocks out there that are in sleepy industries and pay steady dividends. Some will beat the market over the next 10 years. The trick is finding those great stocks among the thousands of publicly traded companies.

Fool analyst Mathew Emmert has mastered this strategy. He finds undervalued stocks in mature industries that pay substantial dividends, thus giving him an edge over the market.

Mathew's results speak for themselves. Over the past two and a half years, he has rewarded subscribers to his Motley Fool Income Investor newsletter with a 16.33% return, outperforming the S&P 500 by more than three percentage points. And he's done it by investing in stocks with low volatility like regional bank AmSouth Bancorp (NYSE:ASO). AmSouth's return is almost 40% since Mathew recommended it in 2003, while the beta stands at an ultra-low 0.38.

You can have a free guest pass to see Mathew's best stock picks and get access to a wealth of information on the Income Investor discussion boards.

Fool analyst Joseph Khattab has never watched an episode of American Idol. He does not have a position in any of the companies mentioned. Microsoft is a Motley Fool Inside Value recommendation. The Fool has an ironclad disclosure policy.