Since many investors desire income with less risk, a growing number of investment managers are building products using volatility and beta screens. Effectively, these managers are taking existing stock universes and creating a subset of less volatile or low beta stocks and charging a fee.
While there are many risk-return benefits to these pre-selected universes, a straight volatility or beta screen can miss a few key elements that can improve the subset.
For the DIY investor, I identified the 5 lowest-beta large cap stocks and applied an additional screen for a sustainably high dividend yield.
Here's what I came up with:
|(GIS)||General Mills, Inc.||0.18|
|(CPB)||Campbell Soup Co.||0.26|
|(DUK)||Duke Energy Corporation||0.36|
When screening for sustainable yield, I filtered out anything that paid less than 3% and had a payout ratio over 90%.
|Company||Dividend Yield||Payout Ratio|
|General Mills, Inc.||3.16%||48.80%|
|Campbell Soup Co.||3.50%||48.66%|
|Duke Energy Corporation||4.78%||77.43%|
Although this isn't a valuation exercise, each of these companies have a reasonable price-to-earnings ratio, except for PG&E.
|General Mills, Inc.||16.45|
|Campbell Soup Co.||13.74|
|Duke Energy Corporation||16.35|
Finally, depending on one's opinion about momentum, I would think twice before considering Lorrilard, which has risen over 71% over the past year.
Disclaimer: This is not advice. While Plan B Economics makes every effort to provide high quality information, the information is not guaranteed to be accurate and should not be relied on. Investing involves risk and you could lose all your money. Consult a professional advisor before making any investing decisions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.