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So much for a bursting of the AI bubble. With the markets on quite a strong winning streak, with the S&P 500 now just a good day or two away from returning to prior highs, investors might be wondering if it’s time to take some profits off the table as market breadth improves and some of the fallen former AI darlings remain in the doghouse.
Undoubtedly, the pick-up in volatility has many investors feeling unnerved. And while I wouldn’t dump the hard-hit AI stocks that haven’t participated in the more recent run-up in broad markets, I would look to consider some of the lower-beta dividend stocks if you’re bracing for more volatility as we head into the end of the year. Perhaps the best way to defend against volatility is to go for the steadier names that can come in handy once an AI bubble really has a chance to burst and investors really start hitting the panic button.
Though expectations on big tech are now in a more reasonable spot, I do think there are serious risks if some of the Magnificent Seven, especially the heavier AI spenders, start coming up short on earnings. In any case, here are two dividend stocks that I think can help investors side-step another steep pullback, which should never be ruled out, especially if the Fed ends up not cutting in December.
J.M. Smucker
J.M. Smucker (NYSE:SJM) shares will probably be spared come the next market correction because they’ve already been through quite a bit of pain. The beta is also at the floor, currently sitting at 0.21. The jam maker has shed over 36% from its 2022 highs and seems to be entering oversold territory. With a mixed quarter in the books and pressures weighing down margins, it seems like shares of the consumer staple are worth throwing in the towel on.
Still, with relative strength in the coffee business and the PB&J product Uncustables experiencing solid demand, I do find the consumer packaged goods play to be intriguing, especially when you consider the firm can capitalize on consumer preferences for healthier and higher-protein products. As J.M. Smucker looks to cut food colorings out of the mix while doubling down on peanut butter products and going after alleged Uncrustables copycats, I do see the name as being able to buck the trend as industry headwinds prevail.
The big question moving forward is whether management can fix operating inefficiencies. If it can, the stock might prove too cheap right here at 11.5 times forward price-to-earnings (P/E). The 4.3% dividend yield is a sweet addition as well.
McDonald’s
McDonald’s (NYSE:MCD) is fresh off some pretty good results, with global comparable store sales up by single digits. And while the fast-food industry has been under considerable pressure in recent months, thanks in part to weakness in the consumer, I’d argue that McDonald’s has done a great job of communicating the value it can provide. Undoubtedly, the restaurant business is getting tougher to thrive in as labor, ingredients, and rent all rise in value.
Either way, McDonald’s has done a fantastic job of keeping its head above the water. As McDonald’s stays innovative with its menu items while continuing to focus on providing value, I see the Golden Arches as a premier market share-taker. Industry pressures have weighed on McDonald’s, but if it can maintain loyalty while embracing technology to lower costs, I can’t help but stay optimistic on the name.
Finally, the big opportunity for McDonald’s over the next 10 years, I believe, lies in automation. If physical AI and sophisticated humanoid robots are really on the way, automated fast-food chains might be the way of the future. And McDonald’s would be poised to benefit. For now, it’s a great defensive dividend payer with a 0.52 beta and a nice 2.4% yield.