Let’s break down some blue- chip stocks for stability when times get tough. This topic feels especially important now, with fears of recession rising.
We can see this through the recent spikes in the CBOE Volatility Index. Also known as the “fear index,” it is up nearly 130% since July 29. Over the same period, the S&P 500 is down 5%. These changes can cause investors to worry, but that doesn’t mean there aren’t places to hide in the stock market when things get dicey.
Some important metrics I’ll highlight in this article include dividend yield, payout ratio, beta, and operating margin. A solid dividend yield allows investors to keep bringing in returns, even when the market isn’t going up.
Low payout ratios mean that companies have enough earnings to continue paying, or even raise their dividends. Beta signals how affected a company is by changes in systematic factors, i.e., factors that affect the entire market. Low betas signal that these stocks tend to be less affected than the overall market, creating a level of stability.
High operating margins show a company has a solid differential between its costs and prices. It provides a buffer, allowing companies to still generate profits if their costs rise or their prices fall, which can happen when things get tough.
Keurig Dr Pepper (KDP)
The first company on our list of blue-chip stocks for stability is Keurig Dr Pepper (NASDAQ:KDP). The company sells a variety of beverages, including Dr. Pepper soda, coffee pods for the at-home Keurig brewing machine, and RC Cola.
Its projected dividend yield sits at 2.5%, a respectable number. Additionally, it has a low payout ratio of just 54%, demonstrating that it has more than enough earnings to pay its dividend going forward.
It also has a high operating margin among U.S. companies in its sector at 23%. Its monthly beta over the last five years of 0.62 is also helpful, being considerably lower than the beta of the overall market of 1. This means that on average, over the past five years, if the market moved 10% up or down, the stock only moved 6.2% in the same direction.
The company’s operations have things built in that help protect it from declining profits when the economy is bad. For example, people might opt to buy Keurig pods and make their coffee at home, a way to save money rather than going out to a café when disposable income is tight.
Kimberly Clark Corporation (KMB)
The next name on our list of blue-chip stocks for stability is Kimberly-Clark Corporation (NYSE:KMB). The company is in the household products industry. The company got 52% of its revenue from its “personal care” segment in 2023.
This segment largely sells diapers, with well-known brands like Huggies and Pull-Ups. When times get tough, diapers remain one thing parents can’t live without, allowing the company to have relatively stable sales. In 2020, revenue actually grew more than in any year between 2014 and 2023, despite the COVID-19 pandemic.
Kimberly-Clark’s projected dividend yield is 3.6%, providing a nice base of income. Its payout ratio of 70% is a bit higher than we might like, but nothing concerning. Additionally, the company has a consistent track record of raising its dividend; it has done so for the past 52 years. It raised its dividend 3.4% from the previous year at the beginning of 2024.
Its 16% operating margin is higher than 80% of companies in the U.S. consumer staples sector. The company’s monthly beta over the past five years is 0.39.
Altria Group (MO)
The last company on our list of blue-chip stocks for stability is Altria Group (NYSE:MO). Altria Group is a tobacco company selling cigarettes and oral forms of tobacco.
Tobacco is a product that users have a hard time not buying in general, and there is evidence sales actually increase in bad times. Like Kimberly-Clark, the highest level of revenue growth for Altria Group between 2014 and 2023 was in 2020. Revenue was up 5.3%.
The company also boasts a fantastic projected dividend yield of nearly 8%. For perspective, this is nearly four times higher than the median projected dividend yield of U.S. large-cap companies of 2.2%. Its payout ratio of 67% is also good to see, and it has increased its dividend in each of the past 54 years.
The company’s monthly beta over the past five years is 0.69. To top it all off, the company has an operating margin superior to that of 99% of U.S. companies in its sector, at 58%.
On the date of publication, Leo Miller did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
