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Let's face it: Not everyone has the stomach to invest in individual stocks. The volatility of the market can prevent the risk-averse among us from getting a good night's sleep. Or, even worse, it can cause us to make rash decisions with our money at the worst possible times. Investors like these should avoid such roller-coaster growth stocks and invest in solid, boring businesses that, though they may not produce dazzling returns in a single quarter, may help to build a strong foundation for long-term wealth.
So we asked three of our contributors to highlight a stock that is better suited for low-risk investors. Here's what they had to say.
Todd Campbell
Johnson & Johnson (JNJ 0.70%) is one company that ought to be considered as a core holding in any long-term portfolio. The healthcare company is a giant in over-the-counter products (Band-Aid, for example), medical technology, and biopharma.
Last year, Johnson & Johnson's various businesses generated $70 billion in sales, 70% of which came from products ranked No. 1 or 2 in their respective marketplaces. Its product line includes a whopping 24 brands that each haul in $1 billion or more in annual sales.
The strength and diversity of its products means the company has plenty of financial firepower to invest in R&D for future growth while also returning money to investors via a dividend. In fact, Johnson & Johnson's development and dividend track record is enviable. Roughly a quarter of its sales come from products launched in the last five years, and management has increased its dividend payout in each the past 53 years. Since 1997, the company's dividend payment has increased from $0.43 to $2.95 per share.
Given its first-class product line and shareholder-friendly dividend track record, there's plenty of reason Johnson & Johnson makes sense for risk-averse portfolios.
Tyler Crowe
Doing a job that no one else wants to do in an industry with high barriers to entry is a great way to build a durable competitive advantage. One example is the handling and disposal of waste. It's a capital-intensive business, given the heavy-duty equipment and large facilities required. It has huge geographic advantages, given the difficulty of opening a new landfill. And, frankly, not a lot of people are itching to get into the waste-handling business.
That is what makes Waste Management (WM 0.90%) such a compelling investment. It has taken those competitive advantages and amplified them through a continuous effort to innovate and cut costs. For instance, the company has been steadily converting its waste collection fleet to run on natural gas, a fuel that is cheaper and can be sourced from the company's methane-releasing landfills. A cost-conscious, shareholder-friendly management team at Waste Management has turned a decidedly unglamorous business into one that has generated stellar returns on equity -- minus a few blips -- for more than a decade.
WM return on equity (TTM) data by YCharts.
Waste Management's shares may wax and wane a bit from time to time, but the company's business fundamentals have remained strong. As long as we're throwing things away, Waste Management will likely remain a low-risk stock to consider for your portfolio.
Andres Cardenal
PepsiCo (PEP 0.21%) is a market leader in nonalcoholic drinks and snacks. The company owns an enormously valuable portfolio, featuring 22 different brands making over $1 billion each in global revenue. In addition to brand value, a gargantuan distribution network and massive financial resources to invest in areas such as marketing and advertising provide extra layers of competitive strength.
Consumer demand is going through an important transformation, as many consumers around the world are increasingly conscious about the importance of healthy eating and drinking habits. While this poses a significant challenge, PepsiCo is quickly adapting to the new trend with healthier brands such as Tropicana, Quaker Oats, and Gatorade, among others.
These rock-solid fundamental strengths have allowed PepsiCo to produce consistent dividend growth through good and bad economic times. The company has raised dividends each and every year over the last 44 years, and it has returned over $65 billion to investors via dividends and buybacks in the last decade. During 2016, management is planning to reward shareholders with $7 billion in cash distributions.
Not only is the business remarkably strong from a fundamentals perspective, but PepsiCo is also trading at a reasonable valuation. After raising dividends by 7.1% for 2016, the stock sports a dividend yield around 3% -- not bad at all coming from such a solid and reliable dividend powerhouse.
