Top 5 Low-Beta High-Yielding Stocks to Shield Your Portfolio

U.S. stock markets tumbled on Jul 24, following weaker-than-expected earnings results of a couple of so-called "Magnificent 7" stocks. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — plummeted 1.3% (504.22 points), 2.3% (128.61 points) and 3.6% (654.94 points), respectively. The S&P 500 and the Nasdaq Composite posted their worst single-day performance since 2022.

Wall Street witnessed an impressive bull run in the past 19 months, barring some minor fluctuations. The rally was predominantly driven by big technology stocks, buoyed by the astonishing adoption of generative artificial intelligence globally. Consequently, several AI-centric stocks skyrocketed 200-300% during this period.

However, the situation started changing this month as investors' preferences shifted from highly overvalued technology stocks to beaten-down rate-sensitive cyclical stocks. This happened after market participants' expectations of two Fed rate cuts of 25 basis points this year jumped to more than 90%.

In addition, lower-than-expected earnings of AI-centric big tech stocks rattled investors' sentiment on whether these companies will be able to deliver in the near future in order to support their overstretched valuations. 

We believe, the market may remain volatile in the near future as a lot of big tech stocks are yet to report quarterly financial results. Any deviation from the market's expectations with respect to any metric (financial or operational) will result in volatility.

At this stage, investment in low-beta stocks with a high dividend yield and a favorable Zacks Rank may be the best option. If markets regain momentum, the favorable Zacks Rank of these stocks will capture the upside potential. However, if the downtrend continues, low-beta stocks will minimize portfolio losses and dividend payments will act as a regular income stream. 

Our Top Picks

We have narrowed our search to five low-beta (beta >0 <1) stocks with a solid dividend yield. These companies have strong growth potential for the rest of 2024 and have seen positive earnings estimate revisions in the past 30 days. Each of our picks carries a Zacks Rank #1 (Strong Buy).

The chart below shows the price performance of our five picks year to date.

Image Source: Zacks Investment Research

Interactive Brokers Group Inc. IBKR is a global automated electronic broker. IBKR's efforts to develop proprietary software, low compensation expenses relative to net revenues, an increase in emerging market customers and higher interest rates are expected to boost revenues in the upcoming quarters. 

IBKR executes, processes and trades in cryptocurrencies too. The commodities futures trading desk of IBKR also offers customers a chance to trade cryptocurrency futures. We project total net revenues to witness a CAGR of 5.2% over the next three years. IBKR's enhanced capital distribution plans seem sustainable given a solid liquidity position.

Interactive Brokers Group has an expected revenue and earnings growth rate of 14.7% and 17.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4.2% over the past 30 days. IBKR has a beta of 0.81 and a current dividend yield of 0.82%.

Reinsurance Group of America Inc. RGA steadily benefits from a mix of organic and transactional opportunities. RGA's niche position in reinsurance markets and expansion of international footprint are positives. Individual mortality has matured and provides a base for stable earnings. 

Significant value embedded in the in-force business should generate predictable long-term earnings. RGA is poised to benefit from improving life reinsurance pricing environment and higher investment income. A solid solvency position reflects RGA's ability to make interest payments.

Reinsurance Group of America has an expected revenue and earnings growth rate of 13.4% and 6.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the past 30 days. RGA has a beta of 0.92 and a current dividend yield of 1.54%.

Packaging Corporation of America PKG is poised well to gain from the strong growth in e-commerce activities that continue to support packaging demand. Stable demand for food, beverages, medication and other consumer products will help sustain the demand for the Packaging segment.

The conversion of the No. 3 paper machine at PKG's Jackson, AL-based mill to liner board through the past few years will enable the company to meet the increase in demand. PKG anticipates higher total corrugated product shipments in 2024. 

Packaging Corporation of America has an expected revenue growth rate of 4.1% for the current year. Although its earnings growth rate is negative for the current year, it is 17.6% for next year. The Zacks Consensus Estimate for current-year earnings has improved 1.7% over the past seven days. PKG has a beta of 0.77 and a current dividend yield of 2.59%.

Franco-Nevada Corp. FNV is well-poised to deliver strong earnings growth, aided by increased contributions from its streaming agreements. Contributions from buyouts, and a healthy portfolio of royalty and streaming agreements will aid the company's growth. Even though FNV has been facing lower output due to the production halt in Cobre Panama, it is likely to be offset by FNV's continued focus on cost management. 

FNV has a debt-free balance sheet and uses its free cash flow to expand the portfolio and pay dividends. Gold prices have been on an uptrend this year, aided by geopolitical reasons, a depreciating U.S. dollar, the potential for monetary policy easing and continuous purchasing by central banks. 

Franco-Nevada has an expected revenue and earnings growth rate of 9.3% and 12%, respectively, for the next year. The Zacks Consensus Estimate for next-year earnings has improved 1.4% over the past seven days. FNV has a beta of 0.74 and a current dividend yield of 1.15%.

Fox Corp. FOX operates as a news, sports, and entertainment company in the United States. FOX operates through Cable Network Programming, Television, and Other, Corporate and Eliminations segments. The Cable Network Programming segment produces and licenses news, business news, and sports content for distribution. 

The U.S. Television segment produces, acquires, markets, and distributes programming through the FOX broadcast network, advertising supported video-on-demand service Tubi, and power broadcast television stations including digital platform. Other, Corporate and Eliminations segment comprises FOX Studio Lot which provides television and film production services including office space, studio operation services, and facility operations, and Credible, a U.S. consumer finance marketplace.

FOX has an expected revenue and earnings growth rate of 9.7% and 10.5%, respectively, for the current year (ending June 2025). The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the past 30 days. FOX has a beta of 0.82 and a current dividend yield of 1.51%.

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