The 100 Lowest Beta Stocks In The S&P 500 Index

Up to date on July twenty third, 2021 by Bob Ciura

On the earth of investing, volatility issues. Buyers are reminded of this each time there’s a downturn within the broader market and particular person shares which might be extra unstable than others expertise monumental swings in value.

Volatility is a proxy for threat; extra volatility typically means a riskier portfolio. The volatility of a safety or portfolio towards a benchmark is named Beta.

Briefly, Beta is measured through a components that calculates the value threat of a safety or portfolio towards a benchmark, which is often the broader market as measured by the S&P 500.

Right here’s find out how to learn inventory betas:

• A beta of 1.0 means the inventory strikes equally with the S&P 500
• A beta of two.0 means the inventory strikes twice as a lot because the S&P 500
• A beta of 0.0 means the shares strikes don’t correlate with the S&P 500
• A beta of -1.0 means the inventory strikes exactly reverse the S&P 500

Curiously, low beta shares have traditionally outperformed the market… However extra on that later.

You possibly can obtain a spreadsheet of the 100 lowest beta shares (together with necessary monetary metrics like price-to-earnings ratios and dividend yields) under:

This text will talk about beta extra completely, why low-beta shares are likely to outperform, and supply a dialogue of the 5 lowest-beta dividend shares within the Positive Evaluation Analysis Database. The desk of contents under permits for simple navigation.

Desk of Contents

The Proof for Low Beta Outperformance

Beta is useful in understanding the general value threat degree for buyers throughout market downturns particularly. The decrease the Beta worth, the much less volatility the inventory or portfolio ought to exhibit towards the benchmark. That is helpful for buyers for apparent causes, significantly these which might be near or already in retirement, as drawdowns ought to be comparatively restricted towards the benchmark.

Importantly, low or excessive Beta merely measures the dimensions of the strikes a safety makes; it doesn’t imply essentially that the value of the safety stays almost fixed. Certainly, securities will be low Beta and nonetheless be caught in long-term downtrends, so that is merely yet another software buyers can use when constructing a portfolio.

The traditional knowledge would counsel that decrease Beta shares ought to underperform the broader markets throughout uptrends and outperform throughout downtrends, providing buyers decrease potential returns in trade for decrease threat.

Nonetheless, historical past would counsel that merely isn’t the case. Certainly, this paper from Harvard Enterprise Faculty means that not solely do low Beta shares not underperform the broader market over time – together with all market circumstances – they really outperform.

A protracted-term examine whereby the shares with the bottom 30% of Beta scores within the US have been pitted towards shares with the very best 30% of Beta scores recommended that low Beta shares outperform by a number of proportion factors yearly.

Over time, this type of outperformance can imply the distinction between a snug retirement and having to proceed working. Whereas low Beta shares aren’t a panacea, the case for his or her outperformance over time – and with decrease threat – is sort of compelling.

How To Calculate Beta

The components to calculate a safety’s Beta is pretty simple. The consequence, expressed as a quantity, reveals the safety’s tendency to maneuver with the benchmark.

For instance, a Beta worth of 1.0 signifies that the safety in query ought to transfer in lockstep with the benchmark. A Beta of two.0 signifies that strikes within the safety ought to be twice as massive in magnitude because the benchmark and in the identical route, whereas a unfavorable Beta signifies that actions within the safety and benchmark have a tendency to maneuver in reverse instructions or are negatively correlated.

In different phrases, negatively correlated securities could be anticipated to rise when the general market falls, or vice versa. A small worth of Beta (one thing lower than 1.0) signifies a inventory that strikes in the identical route because the benchmark, however with smaller relative adjustments.

Right here’s a take a look at the components:

The numerator is the covariance of the asset in query with the market, whereas the denominator is the variance of the market. These complicated-sounding variables aren’t truly that tough to compute – particularly in Excel.

Moreover, Beta can be calculated because the correlation coefficient of the safety in query and the market, multiplied by the safety’s normal deviation divided by the market’s normal deviation.

Lastly, there’s a tremendously simplified approach to calculate Beta by manipulating the capital asset pricing mannequin components (extra on Beta and the capital asset pricing mannequin later on this article).

Right here’s an instance of the info you’ll must calculate Beta:

• Danger-free charge (usually Treasuries no less than two years out)
• Your asset’s charge of return over some interval (usually one 12 months to 5 years)
• Your benchmark’s charge of return over the identical interval because the asset

To indicate find out how to use these variables to do the calculation of Beta, we’ll assume a risk-free charge of two%, our inventory’s charge of return of seven% and the benchmark’s charge of return of 8%.

You begin by subtracting the risk-free charge of return from each the safety in query and the benchmark. On this case, our asset’s charge of return web of the risk-free charge could be 5% (7% – 2%). The identical calculation for the benchmark would yield 6% (8% – 2%).

These two numbers – 5% and 6%, respectively – are the numerator and denominator for the Beta components. 5 divided by six yields a worth of 0.83, and that’s the Beta for this hypothetical safety. On common, we’d anticipate an asset with this Beta worth to be 83% as unstable because the benchmark.

Fascinated about it one other manner, this asset ought to be about 17% much less unstable than the benchmark whereas nonetheless having its anticipated returns correlated in the identical route.

Beta & The Capital Asset Pricing Mannequin (CAPM)

The Capital Asset Pricing Mannequin, or CAPM, is a typical investing components that makes use of the Beta calculation to account for the time worth of cash in addition to the risk-adjusted returns anticipated for a selected asset.

Beta is a vital part of the CAPM as a result of with out it, riskier securities would seem extra favorable to potential buyers as their threat wouldn’t be accounted for within the calculation.

The CAPM components is as follows:

The variables are outlined as:

• ERi = Anticipated return of funding
• Rf = Danger-free charge
• βi = Beta of the funding
• ERm = Anticipated return of market

The danger-free charge is similar as within the Beta components, whereas the Beta that you simply’ve already calculated is just positioned into the CAPM components. The anticipated return of the market (or benchmark) is positioned into the parentheses with the market threat premium, which can be from the Beta components. That is the anticipated benchmark’s return minus the risk-free charge.

To proceed our instance, right here is how the CAPM truly works:

ER = 2% + 0.83(8% – 2%)

On this case, our safety has an anticipated return of 6.98% towards an anticipated benchmark return of 8%. That could be okay relying upon the investor’s targets because the safety in query ought to expertise much less volatility than the market because of its Beta of lower than 1. Whereas the CAPM actually isn’t excellent, it’s comparatively straightforward to calculate and provides buyers a method of comparability between two funding alternate options.

Now, we’ll check out 5 shares that not solely provide buyers low Beta scores, however engaging potential returns as properly.

Evaluation On The 5 Lowest-Beta Dividend Shares

The next 5 shares have the bottom (however optimistic) Beta values, in ascending order from lowest to highest. In addition they pay dividends to shareholders. We targeted on Betas above 0, as we’re nonetheless searching for shares which might be positively correlated with the broader market:

5. Quest Diagnostics (DGX)

Quest Diagnostics operates within the healthcare sector. Quest is a serious diagnostics chief that serves one-third of American adults and half the physicians and hospitals in america annually. The corporate generates over $9 billion in annual income.

Supply: Investor Presentation

The corporate not too long ago reported its fiscal-second quarter outcomes. Second quarter revenues of $2.55 billion rose 40% from 2020. Adjusted earnings-per-share greater than doubled from the identical quarter final 12 months.

For 2021, the corporate expects full-year income between $9.54 billion to $9.79 billion, which might characterize a 1.1% to three.7% enhance for the total 12 months. Adjusted earnings-per-share are anticipated in a variety of $10.65 to $11.35 for 2021.

Quest Diagnostics has a major aggressive benefit, which is its management place in a big (and rising) market. Quest estimated the 2019 lab market to be value $82 billion, and the corporate expects the market to proceed rising at a 2% to three% annual charge.

DGX has a 5-year Beta rating of 0.23.

4. ViacomCBS (VIAC)

ViacomCBS Inc. is an American multinational media conglomerate that was fashioned through the re–merger of CBS Company and Viacom on December 4, 2019, the 2 created from the split of the unique Viacom in 2005. The Firm’s content material manufacturers embody CBS, Showtime Networks, Paramount Footage, Nickelodeon, MTV, Comedy Central, BET, and extra.

The corporate has six totally different income segments, the place Promoting, Affiliate, and Content material Licensing are essentially the most important income supply for the corporate. ViacomCBS generated greater than $25 billion in revenues in fiscal 2020.

2021 is off to an excellent begin for the corporate, as it’s producing sturdy progress from its streaming properties.

Supply: Investor Presentation

With Viacom and CBS’s merger now accomplished, the corporate is among the most important content material producers and suppliers internationally. This permits ViacomCBS to be in a stable place as content material demand continues to develop. We estimate a 5–12 months anticipated progress charge of three% as administration continues to combine each corporations.

VIAC has a 5-year Beta of 0.25.

Click on right here to see our Positive Evaluation Analysis Database report on ViacomCBS.

3. J.M. Smucker (SJM)

J.M. Smucker firm has grown into a global powerhouse of packaged meals and beverage merchandise together with iconic names like Smucker’s, Jif, Folgers, together with pet meals manufacturers like Milk Bone, Meow Combine, Kibbles ‘n Bits and 9Lives. The corporate generated $8 billion in sales final 12 months. Smucker’s focuses on pet meals, espresso and snacking.

Supply: Investor Presentation

On June third, Smucker reported fiscal fourth-quarter and full fiscal 12 months monetary outcomes. For the fourth quarter, gross sales declined 8% to $1.92 billion, as the corporate confronted robust comparable numbers associated to shopper stockpiling in the course of the coronavirus pandemic final 12 months. Adjusted working earnings equaled $312 million, whereas earnings-per-share fell 32% year-over-year.

For the fiscal 12 months, income of $8 billion grew 2.6% from fiscal 2020. Earnings-per-share of $7.79 elevated 14% year-over-year. For the upcoming fiscal 12 months, Smucker expects a 2% to three% gross sales decline, with adjusted EPS in a variety of $8.70 to $9.10.

SJM is a blue chip inventory with a 3.1% dividend yield.

SJM has a 5-year Beta rating of 0.32.

Click on right here to see our Positive Evaluation Analysis Database report on Smucker.

2. FirstEnergy (FE)

FirstEnergy is an electrical utility. It operates Regulated Distribution and Regulated Transmission companies. It owns and manages hydroelectric, coal, nuclear, pure fuel, and renewable power energy producing amenities.

Its 10 electrical distribution corporations type one of many nation’s largest investor–owned electric programs, serving prospects in Ohio, Pennsylvania, New Jersey, West Virginia, Maryland, and New York. The firm serves roughly 6 million prospects.

On April 22nd, 2021, FirstEnergy introduced its Q1 outcomes for the interval ending March 31st, 2021. For the quarter, revenues have been $2.73 billion, a marginal enhance of 0.63% year-over-year, whereas EPS got here in at $0.69, 4.5% greater in comparison with Q1–2020. Revenues benefited from greater residential utilization, together with a optimistic influence from climate in comparison with the similar interval in 2020, funding–associated positive factors, and the implementation of a better base distribution charge in New Jersey.

FirstEnergy reaffirmed its full–12 months operating earnings steering of $2.40 to $2.60 per share. Moreover, administration ensured buyers that it stays on observe to realize annualized working earnings progress from 5% to 7% via 2023.

FE has a 5-year Beta of 0.38.

Click on right here to see our Positive Evaluation Analysis Database report on First Vitality.

1. Common Mills (GIS)

Common Mills is a packaged meals big, with greater than 100 manufacturers and operations in additional than 100 international locations. It produces numerous cereal manufacturers resembling Cheerios. It additionally has manufacturers outdoors cereal together with Haagen Dasz, Yoplait, Betty Crocker, Pillsbury, Blue Buffalo, and lots of extra.

Common Mills has labored aggressively to scale back debt because the $8 billion acquisition of Blue Buffalo. This deleveraging has allowed the corporate to return to growing its dividend.

Supply: Investor Presentation

In late June, Common Mills reported (6/30/21) monetary consequences for the fourth quarter of fiscal 2021. Net gross sales fell –10% and natural gross sales fell –6%, reflecting the comparability towards the surge in at–residence meals demand on the outset of the pandemic final 12 months. Adjusted earnings–per–share decreased –19%, from $1.12 to $0.91.

For the total fiscal 2021, Common Mills posted document earnings–per–share because of the surge in at–residence meals demand amid the pandemic. However, the corporate will face robust comparisons this 12 months, as the pandemic subsides.

The firm expects a –1% to –3% lower in natural gross sales in fiscal 2022 and adjusted earnings–per–share between flat and –2% for the upcoming 12 months.

Shares at present yield 3.5%.

GIS has a 5-year Beta of 0.38.

Click on right here to see our Positive Evaluation Analysis Database report on Common Mills.

Last Ideas

Buyers should take threat into consideration when deciding on from potential investments. In any case, if two securities are in any other case comparable by way of anticipated returns however one presents a a lot decrease Beta, the investor would do properly to pick out the low Beta safety as they could provide higher risk-adjusted returns.

Utilizing Beta will help buyers decide which securities will produce extra volatility than the broader market and which of them might assist diversify a portfolio, resembling those listed right here.

The 5 shares we’ve checked out not solely provide low Beta scores, however additionally they provide engaging dividend yields. Sifting via the immense variety of shares accessible for buy to buyers utilizing standards like these will help buyers discover one of the best shares to go well with their wants.