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3 Top Stocks for Low Risk Investors

By Tyler Crowe, Jason Hall, and Beth McKenna - Jan 17, 2016 at 9:40AM

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Waste Management, Inc., Brookfield Infrastructure Partners L.P., and American Water Works Company are the types of stocks that generate strong returns over time and won't cause you to lose any sleep.

Image Source: GotCredit via

Everyone has a different appetite for risk. Some people like to chase those high growth companies that have chances of doubling in a year or two, while others would likely never sleep at night while three out of 10 of its investments destroy the market while the other 7 crash & burn. If you are one of those investors that doesn't have the sensibility to invest in those higher risk/higher reward type of companies, that's ok, there are plenty of lower risk companies that can generate good returns over time.

So we asked three of our contributors to highlight a company that is more appropriate for someone who has a low appetite for risk. You know, those slow and steady companies that don't get much attention but are well positioned to generate strong returns. Here's what they had to say. 

Image source: Davide Restivo via Wikimedia Commons

Beth McKenna: American Water Works Company (AWK 2.02%), the largest investor-owned water and wastewater utility in the United States, is a terrific stock for those interested in a low-risk investment. 

This is a company that supplies the most indispensable product on the planet and performs one of the most critical services. It's as immune as a company can get to changing tastes and macroeconomic factors, including recessions and depressions. Even though it is in a rather dull business, investors haven't had to sacrifice returns for this quality: Since its April 2008 IPO, the stock's total return is 260%, whipping the S&P 500's return of nearly 66%

Investors don't need to sacrifice growth potential for this stability. American Water Works' industry-leading size means that it should continue to successfully gobble up smaller utilities in this very fragmented industry. Moreover, demand for fresh water should grow as the population increases, while supply will probably shrink because our Earth is in a long-term warming trend. American Water Works can particularly benefit from this supply-demand equation in its non-regulated segment, where it can set its own rates.

American Water Works investors also get a modest dividend -- the stock's currently yielding 2.3%. Investors who don't need current income should automatically reinvest dividends via the company's dividend reinvestment plan (DRIP). 

Jason Hall: One of the lowest-risk places to invest is in stable, cash-producing enterprises that own businesses and assets with major barriers of entry, and Brookfield Infrastructure Partners (BIP -0.10%) checks all of those boxes. Brookfield Infrastructure builds, buys and operates assets that are critical to commerce, industry and the economies of the areas they are located in, are nearly impossible to replace or disrupt, and face little to no competition. 

Image Source: Brookfield Infrastructure Partners investor presentation 

Brookfield Infrastructure's share price isn't immune from drops, and has actually fallen about 20% over the past year which probably doesn't sound very "low-risk." The risks aren't zero, but they are relatively low.The biggest risks the company faces are currency and geography. Since its assets are all over the world, and cash flows are usually generated in local currencies, Brookfield Infrastructure's cash flows have been affected by a strong U.S. dollar. Last quarter alone, this affected funds from operations by $23 million, though the partnership still reported strong growth year-over-year. But over time foreign exchange ebbs and flows, and today's drag on earnings could be tomorrow's boost. 

Brookfield Infrastructure management has shown a great hand at the wheel, acquiring and developing a solid asset base. Its stock has crushed the S&P 500's total return since going public:

BIP Total Return Price Chart

BIP Total Return Price data by YCharts

Brookfield Infrastructure pays a solid dividend, yielding over 6% at recent prices, and it's relatively secure because of the steady cash flows generated by its assets. Add it all up, and this is a solid long-term, low-risk investment. 

Tyler Crowe: Some of the lowest risk investments you can make generally are associated with things that we don't even realize we are doing. One of those habitual things we do is generate garbage, and one of the best companies in the business for handling our waste needs is Waste Management (WM 1.18%)

Image Source: Waste Management corporate website

You probably don't think much about who comes to pick up your garbage or where it goes as long as it's not in your backyard. That is what gives Waste Management such a leg up in this business. There are immense barriers of entry when it comes to owning and operating landfills. It's getting harder and harder to get all the permitting done for new landfills, which puts a large premium on existing ones. This helps to ensure that Waste Management doesn't have to fend off many competitors in its market.

Also impressive is that Waste Management's leadership has been quite adept at finding ways to keep costs low. Today, more than 25% of the company's waste collection fleet runs on natural gas instead of diesel, and 90% of new fleet purchases are natural gas vehicles. Not only is natural gas cheaper than diesel in general, but the company can also use the methane generated by decomposing waste in its landfills as vehicle fuel. 

Waste Management will never wow you with huge earnings growth, but its 3.1% dividend yield and a propensity to repurchase shares that lead to a 12% return on capital.

WM Average Diluted Shares Outstanding (Quarterly) Chart

WM Average Diluted Shares Outstanding (Quarterly) data by YCharts

If you are looking for a safe investment that can help you build wealth over time, Waste Management is certainly one of those stocks. 

Beth McKenna has no position in any stocks mentioned. Jason Hall owns shares of Brookfield Infrastructure Partners and Waste Management. Tyler Crowe owns shares of Waste Management. The Motley Fool owns shares of Waste Management. The Motley Fool recommends Brookfield Infrastructure Partners. Try any of our Foolish newsletter services free for 30 days. 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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Stocks Mentioned

Waste Management, Inc. Stock Quote
Waste Management, Inc.
$171.74 (1.18%) $2.00
Brookfield Infrastructure Partners L.P. Stock Quote
Brookfield Infrastructure Partners L.P.
$41.50 (-0.10%) $0.04
American Water Works Company, Inc. Stock Quote
American Water Works Company, Inc.
$158.33 (2.02%) $3.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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