Many people who began investing during the low-interest rate bull market of 2020–2021 probably had a portfolio that looked like this: a few large-cap U.S. and Canadian tech/growth stocks, maybe a little cryptocurrency, and possibly some meme stocks, too.
Well, this didn’t work out so well in 2022. As interest rates rose to combat less-than-transitory inflation worldwide, valuations suddenly became important again. Investors realized that paying inflated prices for speculative companies with poor fundamentals in competitive industries might not be a good idea.
So, if you’re looking to dial back your stock portfolio’s volatility and reduce its sensitivity to the market’s movements, I suggest considering low-beta, dividend-paying stocks from the consumer defensive sector, which benefits from evergreen demand. Here are my top two picks today.
Loblaw
My first pick is grocery giant Loblaw Companies Ltd. (TSX:L). This stock held up quite well in 2022, ending the year up 17% with dividends reinvested while the rest of the market melted down. It may not have the highest dividend at a forward yield of 1%, but there’s more than this to consider.
Namely, investors should take a second look at Loblaw for its low five-year monthly beta of just 0.06. This is a measure of the stock’s sensitivity and volatility relative to the broad market, which always has a beta of 1.00. As you can see, Loblaw tends to have more muted movements, up or down.
While Loblaw has suffered big drawdowns like in 2007 when the entire market crashed, historically, it has been less erratic. From 1996 to present, the company only recorded 8 years of annual negative returns out of 28 total. Not bad for a “boring” old grocery store!
Metro
As great as Loblaw is, its future performance isn’t guaranteed. Management may run the company poorly, or it may face a scandal. Nobody knows what will happen 10 years from now, so it’s good to diversify to other stocks. I suggest its consumer defensive peer, Metro Inc. (TSX:MRU).
Like Loblaw, Metro also operates supermarkets, discount stores, and drug stores. However, Metro has also expanded to the manufacture of generic drugs and online grocery shopping. Like Loblaw, Metro has a low beta of 0.02, making it perfect as a low-volatility core holding.
Metro doesn’t have the highest dividend either, with a current forward yield of 1.72%. That being said, if you’re looking for safety over income, then Metro could work. To take these two picks to the next level, consider adding more TSX dividend stocks (and the Fool has some great picks below!)
