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3 Safe Stocks You Can Buy Right Now

By Jeremy Bowman, Dan Caplinger, and Bob Ciura – May 3, 2015 at 8:00AM

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These three stocks are likely to provide returns despite market volatility.

Investors have had plenty of reasons to celebrate in recent years. Those who held on through the recession have benefited from a jump of more than 150% in the S&P 500, and the broad market index is back at an all-time high, defying consistent predictions of a correction.

The Federal Reserve is also widely expected to raise interest rates this year or next, lifting returns on bonds and possibly leading some investors to move money out of equities and into the bond market. With this in mind, it may behoove investors to consider a few safer stocks that should keep growing in a harsher climate -- defensive stocks that offer dividends. Let's take a look at three of our contributors' top picks:  

Jeremy Bowman (Wal-Mart)Wal-Mart (WMT -1.33%) offers a solid dividend yield at 2.4%, trades at a P/E of just 15 (which is well below the S&P 500's P/E of 20) , and can offer investors the security of an industry leader with huge economies of scale and a record of raising its dividend 40 years in a row. 

The company is not without challenges as comparable sales at its U.S. Superstores, which make up the majority of its revenue, have stagnated, but there are several growth opportunities for the company that should keep sales and profits moving in the right direction. Its small-footprint Neighborhood Market format has seen solid same-store sales growth, and the company plans to open hundreds more of them this year. It's also making significant investments in e-commerce, another growth outlet, to strengthen its position on that platform, and it's adding stores in China -- a key market. New CEO Doug McMillon also seems unafraid to modernize the company as he recently surprised the business community by implementing a wage increase to improve customer service, an area in which Wal-Mart has long been a laggard.

With a payout ratio of just 40%, there is plenty room of dividend growth and the stock is down nearly 15% from its high earlier this year, meaning there's room for it to bounce back. Factor in the low-priced, discount nature of the company's business and this stock should be safe enough to weather any market storm. 

Dan Caplinger (Campbell Soup): When it comes to safe stocks, I like to look at consumer staples companies that have strong brand names. Campbell Soup (CPB 0.99%) fits the bill and also has a strong 2.7% dividend yield. And unlike many of its blue-chip peers, Campbell Soup's valuation hasn't climbed into the stratosphere.

Admittedly, some of that laggard performance has come from the perception that the soup-maker is behind the times, as many consumers move toward healthier offerings of fresh food produced organically. Yet Campbell also has brands beyond its well-known soup, including snack giant Pepperidge Farm, that could help drive growth in the future. The company has allowed itself to fall behind the curve to some extent, but it hasn't gotten to the point of no return for Campbell just yet.

Most importantly, an entire generation of shoppers would be willing to accept newer products under the Campbell's name that are more in line with modern perceptions of what food should be. Lines of organic or natural soups could command premium prices, and that could help get Campbell Soup's sales numbers out of the doldrums. With its margin of safety and potential for growth, Campbell Soup makes a reasonable pick in a highly priced market.

Bob Ciura (PepsiCo): As a diversified food and beverage conglomerate with one of the most well-known brands in the world, PepsiCo (PEP -0.50%) is a safe stock you can buy today. PepsiCo has all the ingredients of a safe stock: steady growth, a fair valuation, and a strong dividend.

PepsiCo grows revenue and earnings like clockwork. Last year, PepsiCo's revenue and earnings per share grew 4% and 6%, respectively, after adjusting for currency effects. The company is off to a good start to the current year as well. Core earnings per share grew 12% last quarter, year over year, and PepsiCo expects 7% constant-currency earnings growth in 2015.

This steady growth is due largely to PepsiCo's popular products. The flagship Pepsi brand recently surpassed Diet Coke to become the second-most popular soda in the United States. Meanwhile, PepsiCo generated 2% organic revenue growth in beverages in the Americas last quarter, thanks to price increases. And its Frito-Lay products are a hit, particularly in the international markets. PepsiCo's Latin America Foods division grew organic revenue by 18% last quarter.

The company expects to generate $7 billion of free cash flow this year and to return a total of $8.5 billion-$9 billion to shareholders. Of this, approximately $4 billion will be allocated to dividend payments, with the remainder to share buybacks.Overall, PepsiCo pays a hefty 2.7% dividend and has increased its payout for 43 consecutive years.

Lastly, the beverage giant isn't too expensive on a valuation basis, meaning investors are getting a decent margin of safety. The stock trades for 22 times earnings, a tad higher than the S&P 500's P/E. Premium companies often command premium valuations, and PepsiCo's current multiple isn't too far above its historical averages.

As a result, PepsiCo is a strong brand that's growing across the world. The stock is fairly valued, and offers a strong dividend. That's why it's a safe stock to buy today.

Bob Ciura owns shares of Apple and PepsiCo. Dan Caplinger owns shares of Apple. Jeremy Bowman owns shares of Apple. The Motley Fool recommends Apple and PepsiCo. The Motley Fool owns shares of Apple and PepsiCo. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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