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Top 10 Low Risk High Reward Stocks to Buy Now

Daniel Rogers

Jul 19, 2022 17:07

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In this period of uncertainty caused by the epidemic, it is quite reasonable to seek secure stock investments, as nobody wants to lose money.


Fortunately, there are several low-risk high-reward stocks alternative to explore, a few of which we have highlighted in this essay. Continue reading for more information.


Risk is crucial to investing; analyzing profits without mentioning the risk involved is irrelevant. The difficulty is determining where the actual danger sits and the differences between low risk and high risk. This knowledge assists investors in identifying chances to pursue higher profits.


Successful investors strike a balance between the two, even though the amount of return you may earn depends on the amount of risk (and losses) you are willing to accept.


Since we cannot determine the level of risk you are prepared to face as an investor, we have compiled the following list of low-risk stocks with significant potential returns. However, keep in mind that while they are low-risk investments, they are not risk-free.

Comprehending Investment Risk

Many investors believe that a certain investment is either "safe" or "risky." However, the plethora of investing opportunities available today cannot often be that categorized.


There are several types and degrees of risk that an investment may present:

  • Market risk is the possibility that an investment's value will decline in the market (applies primarily to equities and secondarily to fixed-income investments). According to this Investment U article, market risk is prevalent in both bull and downturn markets.

  • The risk that an investment may lose value owing to a change in interest rates (applies to fixed-income investments).

  • Reinvestment Risk: The possibility that a maturing investment may be reinvested at a lower rate of return (applies to fixed-income investments).

  • Political Risk: The possibility that foreign investment would lose value due to political activity in a foreign country (holdings located in developing countries are particularly susceptible to this).

  • Legislative Risk: The possibility of an investment losing value or other benefits due to new laws (all investments are subject to this risk).

  • Liquidity Risk: The possibility that an investment cannot be liquidated when required.

  • Purchasing Power Risk: The possibility that an investment's purchasing power would decline owing to inflation (applies to fixed-income investments).

  • Tax Risk: The possibility that investment would lose value or return on capital due to taxes (most investments are subject to this risk).


Fixed income assets, such as bonds and certificates of deposit, are often subject to interest rate, reinvestment, buying power, and liquidity risk. In contrast, stocks and other equity-based investments are more susceptible to market risk. Moreover, while municipal bonds and annuities are largely protected from tax risk, no investment is secure from political or legislative risk.


The precise categories of risk that apply to a particular investment will vary based on its features; for instance, investments held within a Roth IRA are effectively protected from taxes regardless of other considerations. The degree of risk that a specific investment bears will also vary based on its category, as a small-cap company in the technology sector has a far higher market risk than a preferred stock or utility offering.

Low-Risk Investment Types

1. Preferred Stock 

Preferred stock is a hybrid instrument that trades like equity but functions in many ways like a bond. It often trades within a few dollars of the $25 per share price when it was issued and gives a dividend yield around two percentage points higher than that of CDs and treasuries.


The majority of preferred offerings are also assessed by credit rating agencies such as Moody's and Standard & Poor's, and their default risk is appraised similarly to that of bonds. If the issuer of a preferred offering is exceptionally financially sound, it will earn a rating of AA or A+. Lower-rated issues will pay a higher interest rate to compensate for their greater risk of default.


In addition to receiving their money returned from the issuer before common stockholders in the event of a corporate liquidation, preferred shareholders also lack voting rights.

2. Utility Stock

Like preferred stock, utility stocks tend to have a very steady price and pay around 2% to 3% higher dividends than Treasury securities. These stocks are available for purchase via an online broker such as Ally Invest.


Among the most prominent qualities of utility stocks are:

  • Utility stocks are common stocks with voting rights, and their stock values are typically less steady than those of preferred offers.

  • They are noncyclical stocks, meaning their prices do not increase and decrease in tandem with economic boom and recession, unlike industries such as technology and entertainment. Because people and companies will always want gas, water, and electricity, the utility industry is one of the most defensive in the economy.


Additionally, utility stocks are frequently rated in the same manner as bonds and preferred issues, are completely liquid like preferred stocks, and may be sold at any time without penalty. In addition to being liable to taxes on dividends and capital gains, utility stocks often have a little larger market risk than preferred issues.

3. Money Market Mutual Funds

Money market mutual funds investments are overnight commercial paper and other short-term securities. Even the greatest money market mutual funds often yield almost nothing. In contrast to Treasury securities and corporate bonds, money market funds provide investors with absolute liquidity: They experience no volatility, and you may withdraw your money at any moment.


Also noteworthy is the fact that many banks provide money market mutual funds. You could still be likely to invest in money market funds through the bank if you do not have a brokerage account or do not want one.

4. Fixed Annuities

Fixed annuities are annuity contract that lets investors exchange a significant sum for several payments made over time. Fixed annuities function similarly to certificates of deposit: you agree to lock up your funds for a specified time in exchange for a higher-than-average interest rate.


According to Blueprint Income, a marketplace for fixed annuities, 10-year fixed annuity interest rates are as high as 4.10 percent as of June 2022. However, higher interest rates are typically linked to less reputable insurers who are more likely to default on payments.


Remember that, similar to CDs. You may suffer penalties if you require access to all of your money before the fixed annuity's maturity date. In general, you will have monthly access to a portion of your funds without incurring penalties. 

5. Common Stocks That Pay Dividends

In this low-interest-rate climate, several common stocks are also relatively secure possibilities for investors seeking a higher income. The two main types of these assets are real estate investment trusts (REITs) and utility stocks, which have traditionally been seen as safer, less volatile, and dividend payers with more predictability.


According to statistics examined by the Stern School of Business at New York University, as of June 2022, REIT dividends pay an average of 2.6%, while utility dividends average 2.9%.


Regardless of the industry in which you invest, choosing common stocks that have been operating for decades and provide stable, predictable dividends rather than growth stocks that depend on investor excitement is preferable.


Keep in mind. However, dividend payments on common stock are not guaranteed, and as with other stocks, investing in them may result in a loss.

6. Index Funds

Individual equity investments, including ordinary and preferred stocks and bonds, are not diversified. You may only purchase stock or bonds from one or two businesses, which makes them inherently hazardous. What happens if these businesses fail?


Index funds allow investors to invest separately in hundreds or thousands of stocks and bonds. This significantly reduces the risk you incur while investing while giving a high interest or dividend rate. Diversified funds with greater yields are PIMCO's BOND, Vanguard's BND, and VDADX (Dividend Appreciation) funds.

7. Treasury Notes, Treasury Bills, and Treasury Bonds

Government bonds are the greatest way to earn a slightly higher interest rate than a savings account without taking on significant additional risk. Currently, one-month Treasury yields are 0.85%, while 30-year Treasury yields are 2.977%. (as of June 2022).


The complete faith and credit of the United States government back the bonds that the U.S. Treasury issues, which greatly increases their value. In the past, the United States has always fulfilled its obligations. This makes government debt more trustworthy and simpler to acquire and sell on secondary markets if you require cash access before the maturity date.


However, this stability may result in bonds with lower yields than corporate bonds, where the likelihood of debt repayment is lower.

List of Best Low-Risk High-Reward Stocks

1. McCormick

McCormick (NYSE: MKC) is a diversified manufacturer of spices and flavorings. Since 2008, the firm has not produced a negative yearly return, and therefore its stock price has increased each year for the previous 12 years.


While McCormick's historical EPS growth rate is 12.2%, investors should focus on the predicted growth rate. This year, it is anticipated that the company's EPS will increase by 7.7 percent, a feat few organizations can claim. Even though the S&P 500 is down around 4 percent and the food goods category is down nearly 6 percent this year, McCormick is up about 6 percent.


The corporation saw an 8 percent rise in sales year over year and a 27 percent increase in earnings during the second quarter of its fiscal year 2022, which ended on June 25. The gains were partly attributable to the fact that individuals stayed home and cooked more.


However, McCormick does well in all markets since its profit margins have remained in the 40 percent area over the previous decade. McCormick's current year-over-year cash flow growth rate of 7.8 percent is higher than that of several of its competitors, and the rate is comparable to the industry average of 4.4%.


Another indication of its constancy is its dividend, which has increased for 33 consecutive years. With a beta of 0.36, McCormick is less susceptible to fluctuations in the wider market. The Mccorwick stock price is 200.96 USD +1.57 (0.79 percent ). It has been the model of steadiness in every market, making it stock with minimal risk and tremendous payoff.

2. Berkshire Hathaway

Berkshire Hathaway's conglomerate (NYSE: BRK.A) owns almost 60 subsidiary businesses, including the massive auto insurer GEICO, the railroad operator BNSF, and the battery manufacturer Duracell. Many firms (such as these three) are noncyclical and do well regardless of the economic conditions.


Berkshire also controls a substantial stock portfolio that includes significant holdings in Apple (NASDAQ: AAPL), Bank of America (NYSE: BAC), Coca-Cola (NYSE: KO), and several other companies. In a sense, holding Berkshire is akin to possessing many interests in a single stock. CEO Warren Buffett, one of the best investors in the world, picked the bulk of the components. Due to the broad structure of its operations, Berkshire might be an excellent pick for novice investors seeking secure stocks.

3. Dollar General

Dollar General Corporation (NYSE: DG) is a discount retailer that carries various products, including consumables, seasonal home goods, and fashion. They have had a strong performance in 2022, up almost 22 percent year-to-date.


First-quarter shop sales surged by 21.7%, and earnings per share jumped by 73%, as the cheap retailer remained a critical company during the stay-at-home orders. Last year, the corporation established around one thousand new locations.


Dollar General, like McCormick, has fared well in all markets, with ten consecutive years of positive returns since going public in late 2009. The firm has had 30 straight years of same-store sales growth, which is a vital statistic for determining if a retailer is expanding via execution as well as expansion.

4. Moody's

Moody's has been one of the most stable stocks over the past decade (NYSE: MCO). The company that provides credit ratings, research, and analysis covering fixed-income securities, other debt instruments, as well as quantitative credit risk assessment services for banks, corporations, and investors, has posted an average annual return of 24% over the past ten years and has also performed well so far this year, gaining approximately 15%.


Moody's is powerful because it is one of only three major companies in its business, the others being S&P Global and Fitch Ratings. The three companies dominate 95% of the market, with Moody's and S&P 500 holding around 40% market share each.


The market will only sustain a few rating organizations, and those agencies are strictly controlled. Therefore, do not anticipate Moody's to face any new competitors shortly.


Moody's first-quarter sales increased by 13%, while earnings per share increased by 32% to $2.60. Moody's Investors Service's (the rating business) quarterly revenue increased by 19 percent, while Moody's Analytics' revenue increased by 5 percent.


Moody's derives around 60 percent of its income from the credit rating industry, but in recent years it has expanded its analytics division to diversify revenue when debt issuance is low.


Moody's has taken steps to expand its analytics business through acquisitions in the past year or two. It acquired Regulatory DataCorp, a provider of data that assists businesses in adhering to regulations, and RiskFirst, a provider of risk analytics to asset managers and pension funds.

5. The Walt Disney Company

Most people recognize Disney (NYSE: DIS) for its theme parks, film franchises, and characters, but this entertainment behemoth has much more to offer. Disney also owns a large cruise line, the Pixar, Marvel, and Lucasfilm film studios, the ABC and ESPN television networks, and Hulu, ESPN+, and Disney+ streaming services.


Its theme parks have considerable pricing power and do effectively in most economic environments. The value of Disney's film properties is among the highest in the world, and the company's streaming businesses are a significant (and growing) source of ongoing income.


However, Disney was not immune to the COVID-19 epidemic. Due to the temporary closure of Disney theme parks, Disney's cruise line, and movie theaters, the company's income declined significantly in the fiscal year 2020.


Despite these obstacles, Disney's share price has remained robust due to the success of Disney+ and the company's increased emphasis on its direct-to-consumer approach. These endeavors are fueled by the strength of Disney's brand and the value of the company's intellectual property, and these same attributes make Disney a long-term secure investment.

6. Apple

Apple Inc., headquartered in Cupertino, California, is a global technology corporation that designs, develops, and distributes consumer gadgets, computer software, and online services. Along with Amazon, Google, Microsoft, and Facebook, it is regarded as one of the Big Tech technological giants.


Apple trades under the symbol (NASDAQ: AAPL) and has a long-term advantage due to its exceptionally dedicated customer base and ecosystem of goods built to operate best together. In other words, iPhone buyers tend to stick with the brand.


People who use MacBook laptops tend to be loyal, and the stay-at-home character of the COVID-19 epidemic may stimulate MacBook sales.


Apple's worldwide yearly revenue for the 2018 fiscal year is $265 billion. In August 2018, Apple became the first publicly listed U.S. corporation valued at over $1 trillion. In August 2021, it became the first U.S. firm valued at over $2 trillion.


Apple's stock price as of October 19 is USD 119.59 +0.57 (0.48 percent ). This demonstrates that Apple has great pricing power, making it one of the stocks with the lowest risk and highest profit.

7. Starbucks 

Starbucks Corporation, publicly listed on the NASDAQ under the symbol SBUX, is an international chain of coffeehouses and roastery reserves. With headquarters in Washington, it is now the largest coffeehouse chain in the world.


Its reputable brand offers its price leverage over competitors, and its huge size also provides efficiency advantages. In other words, Starbucks may charge more while benefiting from the cost savings of having a huge firm.


Starbucks' revenue continues to climb yearly; as of 2019, the company's revenue stands at $26.50 billion. Even after the COVID-19 outbreak prompted Starbucks to close its indoor dining areas, customers still came to the drive-through to purchase their favorite beverages.


As of now, Starbucks stocks are being traded on the New York Stock Exchange at 89.01 USD +0.49 (0.56 percent) as one of the low-risk, high-reward stocks.

8. Vanguard Real Estate Index Fund

Real estate is an example of an asset that has a propensity to provide outstanding long-term growth without excessive risk. REITs enable investors to get portfolio exposure to commercial assets such as office buildings, shopping malls, and apartment complexes.


The Vanguard Real Estate Index Fund (NYSEMKT: VNQ) invests in a broad range of real estate stocks, has an above-average dividend yield, and may provide a low-risk, high-reward investment option.


In the early stages of the epidemic, commercial real estate was one of the most severely affected industries. This is because many of the REITs' underlying assets are leased to businesses that rely on employees being physically fit and eager to work in their buildings. However, the long-term investment thesis is strong, and real estate security remains intact, particularly when investing in a diversified index fund such as this one.

9. Annuities

An annuity is an insurance contract assures the customer a steady income stream. The most fundamental kind of annuity is a fixed one, which involves a payment into the annuity in exchange for a fixed income.


This money is often received monthly for a term that might last as long as you live. If you receive a guaranteed return rate, your risk is reduced. The holding insurance company backs your annuity.


According to Blueprint Income, a marketplace for fixed annuities, the range of fixed annuity interest rates as of mid-August 2020 is from 1% to 3.6%. Keep in mind, however, that insurers with worse reputations and hence higher interest rates are more likely to fail on payment.

10. Procter & Gamble

The Procter & Gamble Company (P&G) is a worldwide manufacturer and distributor of consumer products. It specializes in a wide variety of personal health/consumer health items, which are arranged into numerous categories, such as Beauty, Grooming, Health Care, and Fabric & Home Care, to mention a few.


Drinks, snacks, and meals were also part of Pringles' product line until it was sold to Kellogg's. To demonstrate the consistency of Procter & Gamble's business throughout time, the company has increased its dividend for the past 63 years. This is among the most impressive dividend histories in the whole stock market.


The amount of revenue earned in 2020 is $70.95 billion. At 144.36 USD 0.030 (0.021 percent) on the New York Stock Exchange under the symbol PG, Procter & Gamble is one of the low-risk, high-reward stocks.

Final Thoughts

Several options are available to income-seeking investors that promise greater returns with less risk. It is essential to recognize that there is no risk-free investment but that different investments involve varying degrees of risk. However, people ready to investigate conservative to moderate income-generating alternatives that are not principal-guaranteed can obtain a greater return than typical banks. Consult your financial advisor for further information about income-generating assets.