A Low Beta Reading Does Not Fund the Dividend
A low beta is a record of the share price. It says the stock has not moved in step with the S&P 500. Coverage is a separate question. Income investors who stop at that print are reading the wrong page of the filing.
Beta only counts past price moves
Beta is a ratio. Compare how the stock and the market moved together, then divide by how widely the market itself moved. A beta of 1 means the stock matched the market. A beta near zero means the stock mostly ignored it. A negative beta means it tended to move the other way.
That is the whole tool. It does not see the payout or the debt. A company can fall for years on its own problems and still show a low beta, because those problems were not the market’s problems.
The window matters too. In a panic, stocks start moving together, so a low beta measured in calm weather can rise just when the smoother ride was supposed to matter.
The old result is a different trade
Malcolm Baker, Brendan Bradley, and Jeffrey Wurgler reported the pattern in the Financial Analysts Journal in 2011. From 1968 through 2008, one dollar in the lowest beta portfolio grew to $60.46. One dollar in the highest beta portfolio grew to $3.77.
The window closes at the end of 2008. High beta stocks were crushed in that crash. A finish line set in a panic favors the calm book.
The version built to harvest the gap is not a basket of calm stocks. Andrea Frazzini and Lasse Heje Pedersen, in the 2014 Journal of Financial Economics, test a book that borrows so the low beta side has a market beta near 1, and that shorts the high beta side after cutting it down to the same beta. Taking it their way means debt and short sales.
A 2022 paper in the same journal argues that this published version puts a large weight on very small stocks. After trading costs, what is left lines up with profitability and with how much firms invest. Buying large dividend payers, with no borrowing and no short sales, is a different trade.
The same quiet tape hides different cash problems
Regulated utilities often supply that tape. The share can miss a violent week in the index. The cash statement cannot.
Duke Energy shows the funding gap. Adjusted earnings were $1.43 a share, against $1.25. Reported earnings were $1.38. Adjusted results add back settlement charges. Duke kept its 2026 adjusted earnings guide at $6.55 to $6.80 a share and its growth range of 5% to 7% through 2030, measured from a 2025 midpoint of $6.30.
In July the board set the quarterly common dividend at $1.085, up two cents. Four quarters at the new rate equal $4.34, about 66% of the low end of the guide and about 64% of the high end. The check is covered. The cover is not wide.
In the first half, operations produced $4.272 billion of cash and investing used $6.209 billion. Financing brought in $2.424 billion. Second quarter interest expense rose to $957 million from $897 million, and depreciation rose to $1.700 billion from $1.583 billion. Rate recovery lifted earnings. A bigger plant lifted the costs those earnings have to clear.
In August Duke priced $1.75 billion of equity units, with a 7.75% annual distribution and a contract to issue common shares later. Duke said the cash would help retire $500 million of junior subordinated debentures, repay commercial paper, and cover general needs. Today’s beta ignores shares that do not exist yet. The 2025 annual report described a five year capital plan of $103 billion. If commissions slow recovery, or if large loads such as data centers arrive late, the price can stay calm after the easy coverage is gone.
Hershey fails a different test. Through 2024 and 2025 the common dividend stayed at $1.37, eight declarations and no raise, while cocoa costs compressed earnings. On February 4, 2026 the board lifted it to $1.452, up 6%, and declared that rate again on July 29. Four quarters come to $5.81. Second quarter sales were $2.787 billion, up 6.6%, while organic sales rose only 3.6%. Adjusted earnings were $1.90 a share, up 57%. The filing ties the sales gain to price realization of about 12%, so other factors offset part of that pricing. Management guided adjusted earnings growth of 32.5% to 35% for 2026.
When cocoa moved against the firm, the per share dividend stopped rising. A beta near zero would still have called the shares defensive. Today’s cover depends on cocoa and on whether shoppers accept the higher prices.
Cboe Global Markets is the thick cover case. Second quarter net revenue was a record $731.6 million, up 25%, and adjusted earnings were $3.56 a share, up 45%. The adjusted operating margin was 70.4%, against 63.7% a year earlier. The dividend paid that quarter, $0.72, was about 20% of adjusted earnings. In August the board raised the quarterly rate 19%, to $0.86, a 16th straight year of a higher annual payout. Cash of $2.276 billion at June 30 exceeded debt of $1.444 billion. An exchange margin that wide depends on trading, and it narrows when trading slows. Management then lifted the 2026 organic net revenue growth target into the middle to high teens. A target set on a busy tape is not a floor.
Sorting by beta would call Duke, Hershey, and Cboe the same kind of safety.
Use beta for the ride, not the check
Beta still helps size a position. An investor who cannot sit through a market sized loss can prefer smaller moves with the index. That is a choice about the path. It is not proof the next dividend was earned.
Put the annual dividend next to both ends of the earnings guide. Compare operating cash with investment cash over a half year. Read the equity unit terms before trusting per share growth. Ask what would make a board skip a raise. Hershey already answered.
The 1968 to 2008 dollar gap is real, and it ends in a crash. The version studied since then wants borrowed money, short sales, and a portfolio build that later research disputes. None of that says whether a regulated build earns its allowed return, or whether higher candy prices still clear the shelf.
If the share price stays quiet while the funding gap stays open, the low beta was the wrong fact.
Source note: Original Sure Dividend article