As the VIX increases over 20 for the first time since March 22 (see chart below), investors concerned with heightened levels of market volatility should considered dividend paying stocks with low betas to dampen volatility in their portfolio. A Company’s beta quantifies its volatility in relation to the overall market (S&P 500). A beta of one indicates the specific stock will experience market volatility in line with the S&P500. A beta of 0.5 will experience approximately 50% of the volatility of the market. Click to enlarge:
While long-term investors should be equipped to withstand market fluctuations, market volatility can be unnerving for many investors. Building a portfolio of high-quality, dividend paying, low beta equities may help investors sleep better at night during times of turmoil. The table below highlights some low beta stocks that we recommend. This basket of securities has an average dividend yield of 5.7% (or 3.3x the yield of the S&P 500), with an average beta of 0.52.
click to enlarge
In addition to utilizing a portfolio of low beta, high dividend yield equities, we recommend that investors worried about pronounced market volatility should contemplate hedging their portfolios using inverse ETFs and covered call strategies (see Preserving Income: One Strategy for Protecting Profits and Dividend Yield).