Investing in shares has always been risky compared to entering into safe government bonds or depositing money into a savings account with a low rate. Equity investors expose themselves to a variety of market risks, the largest of which are a recession, a fall in profits and rising inflation that is driving central banks to raise interest rates
After a strong rally this year, markets have entered unknown territory where the escalating trade war between the US and China has everything to derail this impressive run. The dispute, which many investors expected now to be resolved, is persistent and creates growing concern about how much worse it can get.
However, for those who want to stay on the market for a long time, while it is impossible to completely avoid risks, it is possible to minimize the risk. The best way to do this is to diversify your portfolio and include low beta stocks: shares that are less volatile than the total stock market.
These stocks will still fall during a severe market downturn, but with less radical movements than fast-growing players. They will also recover quickly when a market correction takes place. Such stocks would include electricity and gas companies, telecom operators and discount retailers. Below are three examples that you could consider if you want to add security to your portfolio.
1. Enbridge Inc.
Enbridge Inc (NYSE :), the largest pipeline operator in North America, could be a good defensive stock in any portfolio. The company is well anchored in the energy supply chain of the region. The huge pipeline infrastructure handles 25% of transportation and 18% of shipments in North America.
After a major restructuring in 2018, Enbridge is now a much more focused, leaner company, well positioned to deliver growing dividends to investors. Tools such as Enbridge have thousands of customers who regularly pay costs each month and it is very unlikely that their income will be affected if a recession occurs.
98% of Enbridge & # 39; s EBITDA comes from its regulated activities. This is one of the biggest benefits of investing in regulated utilities, because cash flow security isolates your portfolio against the drastic impact of a downturn.
In an environment with low interest rates, the dividend yield of 5.8% from Enbridge looks pretty attractive. The company pays around $ 0.55 per share in quarterly dividends that it plans to increase by 10% each year. The stocks, which traded at $ 37.35 at the end of yesterday, have won more than 20% this year, better than the + 14% rise in the climb.
2. Brookfield Infrastructure Partners
Toronto-based Brookfield Infrastructure Partners LP (NYSE 🙂 is another high-yielding stock that could offer some stability in the event of high market volatility. BIP owns and operates utilities, transportation, energy and communications infrastructure companies worldwide and manages a portfolio of approximately $ 30 billion with assets across five continents.
These include utilities and power transmission systems in North and South America, 37 ports in North America, the United Kingdom, Australia and Europe, approximately 3,800 kilometers of toll roads in South America and India, and major rail operations in Australia and South America. America. .
The aim of the company is to generate a long-term return of 12% to 15% on equity and to offer sustainable payments to investors, while aiming at an annual distribution growth of 5 to 9% .
According to Brookfield, its strategy is to acquire high-quality, value-based companies, actively manage operations and opportunistically sell assets to reinvest capital in the company.
If you look at the numbers, there is no doubt that the company has successfully implemented its plan. Since 2008 it has delivered a combined total return of 15%. This year the BIP stock is still attractively increasing with more than 20%, especially with a dividend yield of almost 5%.
Brookfield Infrastructure Partners Weekly Chart
3. Walmart Inc.
One way to better position your portfolio in times of market disruption is to accommodate companies that produce or sell products and services that are crucial to our daily lives. Large retail companies fit this profile well. The logic: in times of economic recession you can lower your budget for good food, but there is little chance that you will shrink on basic groceries.
This built-in protection makes & # 39; the world's largest physical grocer, Walmart Inc (NYSE :), a great defensive stock. Acting now at $ 101.52, Walmart may not have too many upward sides after collecting more than 10% this year, but his latest win report suggests that it is doing many things well to the growing threat of competition from Amazon (NASDAQ 🙂 to handle.
Comparable store sales of the big-box giant in the first quarter grew by 3.4% compared to a year earlier – the strongest performance on that given in nine years – while online sales rose 37% compared to a year ago. The earnings momentum that began in 2015 has become a new standard for Walmart, making the share a good long-term bet
Walmart & # 39; s solid dividend is an additional benefit. With a yield of 2.1% and a quarterly payout of $ 0.53, these shares are a good choice to own due to the thick and thin activity of the market. The company has an impressive reputation when it comes to sending money back to its investors.
Bottom Line
Buying stable dividend shares is a winning strategy when volatility increases and the risks to economic growth increase. Enbridge, BIP and Walmart fit nicely into this defensive strategy. You can rely on their growing payouts, while markets correct themselves and find a new balance.
