3 of the best shares to buy in volatile markets

Share prices are increasingly volatile. Harshil Patel considers three of the best shares to buy in the current environment.

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Every now and again, the stock market enters a period of higher volatility and turbulence. It can sometimes, but not always, precede a recession. Today, I’m looking at the best shares to buy in volatile markets.

During these periods, the shares that performed well in recent years might not be the best options for me for the coming year. Last year, several consumer stocks and industrials outperformed.

For instance, the Watches of Switzerland share price more than doubled, and Ashtead shares gained 74%. But I don’t think either are suitable for me in the current market environment.

Best shares to buy

I reckon the best shares to buy in turbulent times might be utilities or those in the consumer defensive sector. Companies in these sectors tend to offer slower growth than faster-growing parts of the market such as technology. But they’re relatively more stable in tough times.

Utility companies frequently offer higher than average dividend yields. If economic growth slows over the coming months or year, I reckon dividend income will become ever more important.

Right now, I’d consider shares in electricity provider SSE. It currently offers a 5% dividend yield. I like it even more knowing that it has been a regular dividend payer for nearly three decades. The future looks bright and SSE is in an area of focus for the coming decades. That’s because it’s one of the UK’s leading generators of renewable electricity.

9% dividend yield

The best shares to buy in the consumer defensive sector right now also offer greater than average dividend yields. For instance, one company that I reckon could be a stable option in tough times is Imperial Brands (LSE:IMB). Currently on a dividend yield of 9%, it’s one of the highest in the FTSE 100.

On a £5,000 investment, that’s passive income of £450 over one year. Bear in mind that dividends can be moved up or down. Management might make that decision based on its earnings. That said, I’m comfortable with this. Like SSE, it’s also a regular payer as it has paid dividends for 25 years.

What I like about Imperial Brands right now is that it offers products that have stable demand. Its products are relatively sticky in that sense. Yes, there are regulatory risks and changing consumer habits could limit growth over the long term. But overall, I’d buy these shares in tough times.

Defensive shares

Finally, BAE Systems (LSE:BA.) could be a god pick for me, I feel. Yes, its share price is already up by 33% this year, but I think there’s more upside to come. I’d certainly consider it for my Stocks and Shares ISA.

Several countries, including Germany and Denmark, have indicated their desire to boost spending on defence. The tragic events in Ukraine have aided this move and sales for BAE could rise. That said, geopolitical events can be fast-moving and unpredictable over the long term.

Even before recent events, shares in this aerospace and defence company looked attractive. Sales at BAE have steadily grown by 28% over the past five years. Profits have kept pace and margins have remained in double-digits.

Currently, these shares offer a dividend yield of 3.8%. It’s not the greatest yield of my top picks, but with the added potential of earnings growth, I reckon it’s an attractive option.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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