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Summary

  • Free spreadsheet of all Dividend Aristocrats sorted by dividend yield.
  • Interest rates are near historical lows.
  • Overview of the top 5 lowest-volatility Dividend Aristocrats.
  • A portfolio of low-volatility Dividend Aristocrats can nearly match long-term government bond yield and volatility.
  • Low-volatility stocks have outperformed the market over long periods of time.

The Long-Term US Treasury bond ETF (NYSEARCA:TLT) has a standard deviation of 14.18% and a dividend yield of 2.92%. Low-volatility Dividend Aristocrat stocks offer similar yields with slightly higher volatility, in addition to capital appreciation.

Today's artificially low interest rate environment makes low-volatility dividend aristocrat stocks an attractive investment versus long-term bonds.

The 5 lowest-volatility Dividend Aristocrats are listed below. You can download the complete list of Dividend Aristocrats sorted by volatility here:

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Match Bond Volatility with Stocks

An equally weighted portfolio of the stocks above has a standard deviation of 16.44%, with a dividend yield of 3.30%. By holding about 14% cash, you can create a portfolio of these 5 stocks that has a standard deviation equal to that of long-term government bonds, with a yield of 2.84%; nearly the same as long-term government bonds.

In exchange for a very small .08 percentage points of yield and no volatility change, you get income growth and capital appreciation over time.

Stock/Bond Trade-Off

The downside to switching your long-term bond holdings into low-volatility dividend aristocrats is you lose an asset class that has historically done well during recessions. If interest rates rise, however, long-term bond prices will fall, resulting in a loss of capital.

It is very likely that interest rates will rise in the future. The exact date rates will begin to rise is unknowable, but we are at historically low interest rates now.

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Source: Multpl.com

Overview of Lowest-Volatility Dividend Aristocrats

Johnson & Johnson (JNJ)

Johnson & Johnson was founded in 1886, and became publicly traded in 1944. The company has increased dividends for 52 consecutive years, one of the longest active streaks of any business. Johnson & Johnson is the largest healthcare business in the world. The company's revenues are split between pharmaceuticals, medical devices and diagnostics, and consumer products.

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Source: Johnson & Johnson 2013 Annual Report

Johnson & Johnson has the lowest volatility of any Dividend Aristocrat. The company operates in the relatively recession resistant healthcare sector, and its healthcare revenues are very well-diversified. The company holds several strong brands, has an above-average dividend yield, and an extremely long history of rewarding shareholders.

Consolidated Edison (ED)

Consolidated Edison provides electricity and gas to consumers in New York City and Westchester county. The company has increased its dividend for 40 consecutive years. Consolidated Edison's low volatility is due to the company operating in the extremely stable electric and gas utility industry.

PepsiCo (PEP)

PepsiCo is immediately recognized for its flagship Pepsi soda brand. The company sells much more than just Pepsi. Pepsico has 22 brands with over $1 billion per year in sales.

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Source: Pepsi Official Website

PepsiCo has a dividend yield around 3%. The company's low volatility comes from its strong brand snack and beverage brands, and its ability to remain profitable throughout recessions. PepsiCo offers shareholders dividends, growth, and stability.

Kimberly-Clark (KMB)

Kimberly-Clark is a global consumer products company with 5 brands that generate over $1 billion per year in sales: Huggies, Kotex, Kleenex, Pull-Ups, and Scott. The company sells products in 175 countries, and 25% of the world's population uses Kimberly-Clark products.

Kimberly-Clark's low volatility comes from its strong brands in products that consumers use and dispose of continuously. The Kleenex brand, in particular, is so ubiquitous that all brands of tissues are commonly referred to as "Kleenex". Kimberly-Clark has a dividend yield around 3%, offering shareholders stability, income, and growth.

Procter & Gamble (PG)

Procter & Gamble is the largest personal products business in the world. The company sells branded consumer products out of its 5 divisions: beauty, grooming, healthcare, fabric care and home care, and baby care and family care.


Source: Procter & Gamble 2013 Annual Report

Procter & Gamble has increased its dividend for 58 consecutive years. The company currently yields over 3%, has low volatility, and offers both income and capital appreciation potential.

Build a Better Portfolio

Of the 5 lowest-volatility dividend aristocrats, Pepsico and Kimberly-Clark are ranked in the Top 10, based on the 8 Rules of Dividend Investing.

Low-volatility businesses tend to have few questions about where future growth will come from. Low volatility shows that future cash flows are not in question, and are more predictable than high-volatility stocks. Low-volatility stocks have managed to outperform the overall stock market by 2 percentage points per year over a 20-year period.

Disclosure: The author is long PEP. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.