This excellent article about top 100 low beta stocks list 2022, lowest beta S&P 500 stocks was originally published by Sure Dividend. We have received permission to republish it here.
In the world of investing, volatility matters. Investors are reminded of this every time there is a downturn in the broader market and individual stocks that are more volatile than others experience enormous swings in price.
Volatility is a proxy for risk; more volatility generally means a riskier portfolio. The volatility of a security or portfolio against a benchmark is called Beta.
In short, Beta is measured via a formula that calculates the price risk of a security or portfolio against a benchmark, which is typically the broader market as measured by the S&P 500.
Here’s how to read stock betas:
- A beta of 1.0 means the stock moves equally with the S&P 500
- A beta of 2.0 means the stock moves twice as much as the S&P 500
- A beta of 0.0 means the stocks moves don’t correlate with the S&P 500
- A beta of -1.0 means the stock moves precisely opposite the S&P 500
Interestingly, low beta stocks have historically outperformed the market… But more on that later.
You can download a spreadsheet of the 100 lowest beta stocks (along with important financial metrics like price-to-earnings ratios and dividend yields) below:
This article will discuss beta more thoroughly, why low-beta stocks tend to outperform, and provide a discussion of the 5 lowest-beta dividend stocks in the Sure Analysis Research Database.
The Evidence for Low Beta Outperformance
Beta is helpful in understanding the overall price risk level for investors during market downturns in particular.
The lower the Beta value, the less volatility the stock or portfolio should exhibit against the benchmark. This is beneficial for investors for obvious reasons, particularly those that are close to or already in retirement, as drawdowns should be relatively limited against the benchmark.
Importantly, low or high Beta simply measures the size of the moves a security makes; it does not mean necessarily that the price of the security stays nearly constant.
Indeed, securities can be low Beta and still be caught in long-term downtrends, so this is simply one more tool investors can use when building a portfolio.
The conventional wisdom would suggest that lower Beta stocks should underperform the broader markets during uptrends and outperform during downtrends, offering investors lower prospective returns in exchange for lower risk.
However, history would suggest that simply isn’t the case. Indeed, this paper from Harvard Business School suggests that not only do low Beta stocks not underperform the broader market over time – including all market conditions – they actually outperform.
A long-term study wherein the stocks with the lowest 30% of Beta scores in the US were pitted against stocks with the highest 30% of Beta scores suggested that low Beta stocks outperform by several percentage points annually.
Over time, this sort of outperformance can mean the difference between a comfortable retirement and having to continue working. While low Beta stocks aren’t a panacea, the case for their outperformance over time – and with lower risk – is quite compelling.
How To Calculate Beta
The formula to calculate a security’s Beta is fairly straightforward. The result, expressed as a number, shows the security’s tendency to move with the benchmark.
For example, a Beta value of 1.0 means that the security in question should move in lockstep with the benchmark.
A Beta of 2.0 means that moves in the security should be twice as large in magnitude as the benchmark and in the same direction, while a negative Beta means that movements in the security and benchmark tend to move in opposite directions or are negatively correlated.
In other words, negatively correlated securities would be expected to rise when the overall market falls, or vice versa.
A small value of Beta (something less than 1.0) indicates a stock that moves in the same direction as the benchmark, but with smaller relative changes.
Here’s a look at the formula:
The numerator is the covariance of the asset in question with the market, while the denominator is the variance of the market. These complicated-sounding variables aren’t actually that difficult to compute – especially in Excel.
Additionally, Beta can also be calculated as the correlation coefficient of the security in question and the market, multiplied by the security’s standard deviation divided by the market’s standard deviation.
Finally, there’s a greatly simplified way to calculate Beta by manipulating the capital asset pricing model formula (more on Beta and the capital asset pricing model later in this article).
Here’s an example of the data you’ll need to calculate Beta:
- Risk-free rate (typically Treasuries at least two years out)
- Your asset’s rate of return over some period (typically one year to five years)
- Your benchmark’s rate of return over the same period as the asset
To show how to use these variables to do the calculation of Beta, we’ll assume a risk-free rate of 2%, our stock’s rate of return of 7% and the benchmark’s rate of return of 8%.
You start by subtracting the risk-free rate of return from both the security in question and the benchmark.
In this case, our asset’s rate of return net of the risk-free rate would be 5% (7% – 2%). The same calculation for the benchmark would yield 6% (8% – 2%).
These two numbers – 5% and 6%, respectively – are the numerator and denominator for the Beta formula. Five divided by six yields a value of 0.83, and that is the Beta for this hypothetical security.
On average, we’d expect an asset with this Beta value to be 83% as volatile as the benchmark.
Thinking about it another way, this asset should be about 17% less volatile than the benchmark while still having its expected returns correlated in the same direction.
Beta & The Capital Asset Pricing Model (CAPM)
The Capital Asset Pricing Model, or CAPM, is a common investing formula that utilizes the Beta calculation to account for the time value of money as well as the risk-adjusted returns expected for a particular asset.
Beta is an essential component of the CAPM because without it, riskier securities would appear more favorable to prospective investors. Their risk wouldn’t be accounted for in the calculation.
The CAPM formula is as follows:
ERi = Expected return of investment
Rf = Risk-free rate
βi = Beta of the investment
ERm = Expected return of market
The risk-free rate is the same as in the Beta formula, while the Beta that you’ve already calculated is simply placed into the CAPM formula.
The expected return of the market (or benchmark) is placed into the parentheses with the market risk premium, which is also from the Beta formula. This is the expected benchmark’s return minus the risk-free rate.
To continue our example, here is how the CAPM actually works:
ER = 2% + 0.83(8% – 2%)
In this case, our security has an expected return of 6.98% against an expected benchmark return of 8%. That may be okay depending upon the investor’s goals as the security in question should experience less volatility than the market thanks to its Beta of less than 1.
While the CAPM certainly isn’t perfect, it is relatively easy to calculate and gives investors a means of comparison between two investment alternatives.
Now, we’ll take a look at five stocks that not only offer investors low Beta scores, but attractive prospective returns as well.
Analysis On The 5 Lowest-Beta Dividend Stocks
The following 5 stocks have the lowest (but positive) Beta values, in ascending order from lowest to highest. They also pay dividends to shareholders.
We focused on Betas above 0, as we are still looking for stocks that are positively correlated with the broader market:
5. Allstate Corporation (ALL)
Allstate Corporation is an insurance company that offers property and casualty insurance to its customers. The company also sells life, accident, and health insurance products.
Its segments include Allstate Protection, Service Businesses, Allstate Life, Allstate Benefits, Allstate Annuities, etc. Allstate’s insurance brands include Allstate, Encompass, and Esurance.
Allstate Corporation reported first quarter 2022 results on May 4th, for the period ending March 31st, 2022.
The company reported consolidated revenue of $12.3 billion for the quarter, a 1% year-over-year decrease.
Property and casualty insurance premiums totaled $10.98 billion, up 6.5% from $10.31 billion from the same period a year ago.
Adjusted net income per share of $2.58 was a 58% decline from $6.11 a year ago, due to higher auto accident frequency and increased inflation, unfavorable prior year reserve estimates and lower net investment income.
Total policies in force continue to increase YoY, from 183 million to 190 million, a 4% increase. The annual adjusted net income return on common shareholder’s equity was 12.8%, 10.4 points lower than last year’s 23.2%.
The company returned more than $1 billion to shareholders through dividends and share repurchases in Q1 2022. Book value per share decreased 6.3% YoY to $75.95.
ALL has a 5-year Beta score of 0.55.
Click here to download our most recent Sure Analysis report on Allstate
4. Brown-Forman (BF.B)
Brown-Forman is an alcoholic beverage company that is based in Louisville. The company was founded in 1870. BrownForman produces and sells whiskey, vodka, tequila, champagne, and wine. Its portfolio includes a range of mostly premium brands, such as Jack Daniel’s, Finlandia Vodka, Old Forester, and many others.
Brown-Forman reported its fourth quarter (fiscal 2022) earnings results on June 8th.
The company announced that it generated revenues of $1.0 billion in the period, which was up 23% from the revenues the company generated during the previous year’s quarter.
Brown-Forman’s revenues came in above the analyst consensus, beating it by $160 million, or more than 15%. The sales growth rate during the quarter was considerably higher compared to the previous quarter, partially due to a relatively easy comparison with the weak quarter one year earlier.
Brown-Forman’s earnings-per-share totaled $0.31 during the fourth quarter, which was above the consensus analyst estimate, beating the consensus by $0.05.
Earnings-per-share were up by an attractive 26% compared to the previous year’s quarter. During fiscal 2022, Brown-Forman has earned $1.74 on a per-share basis, which was down year-over-year but which was still better than estimated. For the current fiscal year, record profits are expected, at close to $2.00.
BF.B has a 5-year Beta score of 0.55.
Click here to download our most recent Sure Analysis report on Brown-Forman
3. Davita Inc. (DVA)
DaVita is a kidney care provider that is focused on improving the quality of life for patients that need dialysis or other kidney care.
DaVita seeks to provide access to equitable care for patients at all stages of kidney disease, as well as across settings. That includes slowing the progression of kidney disease, streamlining the transplant process, acute hospital care, and even dialysis at home.
The company has about 200,000 patients at ~2,800 outpatient dialysis centers in the US.
In addition, the company operates ~350 outpatient dialysis centers in 11 countries globally. The goal of DaVita is to reduce hospitalizations, improve the mortality rate, and use technology to improve kidney care over time.
DaVita was founded in 1994, employs almost 70,000 people worldwide, generates just under $12 billion in annual revenue.
DaVita is one of the top holdings of Berkshire Hathaway (BRK.B), making it a Warren Buffett stock.
DVA has a 5-year Beta score of 0.50.
2. Quest Diagnostics (DGX)
Quest Diagnostics operates in the healthcare sector. Quest is a major diagnostics leader that serves one-third of American adults and half the physicians and hospitals in the United States each year.
The company generates over $10 billion in annual revenue.
Quest Diagnostics Inc. is the world’s leading provider of diagnostic information services.
The company offers diagnostic testing services for cancer, cardiovascular disease, infectious disease, neurological disorders, COVID-19, and employment and court-ordered drug testing. Quest operates in the United States, Puerto Rico, Mexico, and Brazil.
Through acquisitions and spinoffs, Quest Diagnostics Inc. was formed on December 31, 1996. Quest annually serves one in three adult Americans and half the physicians and hospitals in the United States and has nearly 50,000 employees.
Quest Diagnostics has increased its dividend for 11 consecutive years, placing it on the Dividend Achievers list.
The most recent dividend increase was on February 3, 2022, when the company increased its dividend by 6.5%, from $0.62 per share per quarter to $0.66 per share per quarter.
DGX has a 5-year Beta score of 0.45.
Click here to download our most recent Sure Analysis report on DGX
1. Tyson Foods (TSN)
Tyson Foods, founded in 1935, is one the world’s largest processors and marketers of chicken, beef and pork products.
The company was founded by John Tyson, an Arkansas farmer who started out as a small businessman hauling chickens to Midwestern markets.
Today, Tyson Foods sells products to leading grocery chains, food franchises, and military commissaries in over 100 countries.
Well–known brands include Tyson, Jimmy Dean, Hillshire Farm, Ball Park and State Fair. The company generated $47 billion in revenue last year.
The company has performed well in the 2022 first half:
TSN has a 5-year Beta of 0.45.
Click here to download our most recent Sure Analysis report on TSN
Final Thoughts on Low Beta Stocks
Investors must take risk into account when selecting from prospective investments.
After all, if two securities are otherwise similar in terms of expected returns but one offers a much lower Beta, the investor would do well to select the low Beta security as they may offer better risk-adjusted returns.
Using Beta can help investors determine which securities will produce more volatility than the broader market and which ones may help diversify a portfolio, such as the ones listed here.
The five stocks we’ve looked at not only offer low Beta scores, but they also offer attractive dividend yields. Sifting through the immense number of stocks available for purchase to investors using criteria like these can help investors find the best stocks to suit their needs.
At Sure Dividend, we often advocate for investing in companies with a high probability of increasing their dividends each and every year.
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This article was produced by Sure Dividend and syndicated by Wealthy Living
Featured image credit: Shutterstock.
