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Let's face it, not everyone has the stomach to invest in individual stocks. The volatility of the market can prevent the risk-averse among us from getting a good night's sleep. Or, even worse, can cause us to make rash decisions about our money when it may not be the most prudent thing to do. For investors like these, rather than trying to chase those roller-coaster growth stocks, it's better to invest in solid, boring businesses that may not overwhelm with huge gains over a couple of weeks or months but may help to build a foundation for long-term wealth.
In this vein, we asked three of our contributors to highlight a stock that is better suited for low-risk investors, and here's what they had to say.
Johnson & Johnson is one company that ought to be considered as a core holding in any long-term portfolio. The healthcare company is a giant in over-the-counter products including Band-Aid as well as medical technology, and it's a downright Goliath in biopharma.
Last year, its various businesses generated $70 billion in sales, 70% of which came from products ranked No. 1 or 2 in their respective marketplaces, and overall, its product line includes a whopping 24 brands that each hauls in $1 billion or more per year in sales.
The strength and diversity of its products means the company has plenty of financial firepower to invest in R&D for future growth, while also returning money to investors via a dividend.
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In fact, Johnson & Johnson's development and dividend track record is downright enviable. Roughly a quarter of its sales come from products launched in the last five years, and management has increased its dividend payout in every one of the past 53 years. Since 1997, the company's dividend payment has increased from $0.43 to $2.95 per share.
Given its first-class product line and its shareholder-friendly dividend track record, there's plenty of reason to think this one makes sense for risk-adverse portfolios.
Businesses that no one wants to do and won't likely be disrupted by competitors are great places to look. One example is the disposal and handling of refuse. It's a capital-intensive business, it has huge geographic advantages since opening a new landfill is very difficult to do, and, frankly, not a lot of people are itching to get into the waste-handling business.
That is what makes Waste Management such a compelling investment. It has taken those competitive advantages and amplified them through a continuous effort to innovate and cut costs. For instance, the company pushed to convert its waste collection fleet to run on natural gas, a fuel that is both cheaper and can source itself from its methane-releasing landfills. A cost-conscious, shareholder-friendly management team at Waste Management has turned a job that few want to do into a business that has generated high returns on equity -- minus a few blips -- for more than a decade.
Waste Management's shares may wax and wane a bit from time to time, but the company's business fundamentals have remained strong. As long as we're throwing things away, Waste Management will likely remain a low-risk stock to consider for your portfolio.
PepsiCo is a market leader in nonalcoholic drinks and snacks. The company owns an enormously valuable portfolio, featuring 22 different brands making over $1 billion each in global revenue. In addition to brand value, a gargantuan distribution network and massive financial resources to invest in areas such as marketing and advertising provide extra layers of competitive strength.
Consumer demand is going through an important transformation, as many consumers around the world are increasingly conscious about the importance of healthy eating and drinking habits. While this can be an important challenge to keep in mind, PepsiCo is doing a sound job at adapting to the new trend with healthier brands such as Tropicana, Quaker Oats, and Gatorade, among others.
These rock-solid fundamental strengths have allowed PepsiCo to produce consistent dividend growth through good and bad economic times. The company has raised dividends in each and every year over the last 44 consecutive years, and it has returned over $65 billion to investors via dividends and buybacks in the last decade. During 2016, management is planning to reward shareholders with $7 billion in cash distributions.
Not only is the business remarkably strong from a fundamentals perspective, but PepsiCo is also trading at fairly reasonable valuation levels. After raising dividends by 7.1% for 2016, the stock is trading at a dividend yield around 3% versus current stock prices, not bad at all coming from such a solid and reliable dividend powerhouse.
The article 3 Top Stocks for Risk-Averse Investors originally appeared on Fool.com.
Andrs Cardenal has no position in any stocks mentioned. Todd Campbell has no position in any stocks mentioned. Tyler Crowe owns shares of Waste Management. The Motley Fool owns shares of and recommends PepsiCo. The Motley Fool owns shares of Waste Management. The Motley Fool recommends Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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