After a brief respite, volatility has returned to the stock market with a vengeance. In fact, the only index that rose was the Market Volatility Index (VIX), which measures the market’s expectation of stock market volatility for the next 30 days. The VIX has risen nearly 50% since early May. 

The debt crisis in Europe, slowing growth in China and a tepid U.S. economic recovery are all factors fueling investor fears. Because none of these issues is showing signs of abating soon, I’m adding low-beta stocks to my portfolio in order to dampen market swings. 

#-ad_banner-#The beta of a stock measures how volatile a stock is relative to the broader market. The overall market beta is 1, so a stock with a beta of 0.5, for example, is half as volatile as the market. As a general rule, because of smaller price swings, low-beta stocks are less risky than high-beta stocks.

Here are three low-beta stocks that also provide generous dividend yields and can help insulate your portfolio from stock market volatility…

1. Abbott Laboratories (NYSE: ABT)
Beta: 0.4 
Yield: 3%
This global drug and medical device maker has an exceptional track record for income growth. The company has raised its dividend 40 years in a row, including a 6% hike last quarter to a $2.04 annual rate.

Earnings have risen in four of the past five years, by a total of 31%. Good performance continued in the first quarter of 2012 with earnings per share (EPS) climbing 39% to $0.78, compared with the first quarter of 2011. Abbott received a big lift from increased sales of its blockbuster arthritis drug Humira and expects full-year 2012 earnings growth of 7-9%. Analysts say long-term earnings growth could reach 9% a year. 

Abbott also plans to unlock value by splitting into two publicly-traded companies this year. The business that retains the Abbott name will own the branded generic pharmaceuticals, medical devices and nutrition businesses. Under the name Abbvie, the research-based pharmaceutical business will own the proprietary drug portfolio.
Shares are yielding about 3%. Payout is steady at 60%, and dividend increases in the past five years have averaged 9%. When it separates, Abbott will split the dividend between the two companies, each paying a $1.02 annual rate. 

2. Kimberly Clark Corp. (NYSE: KMB)
Beta: 0.2   
Yield: 4%
Kimberly Clark is a leading worldwide manufacturer of health and hygiene products with annual sales exceeding $20 billion. The company holds the No. 1 or No. 2 market share in 80 countries, and has five well-known brands — including Kleenex, Scott and Huggies — each generating more than $1 billion in annual sales. In the past five years, sales have grown steadily at 5% a year, though earnings growth has been slower and only about 4% a year.

Kimberly Clark is trying to boost profits by marketing higher-margin products more aggressively and by cutting more than $1 billion from annual expenses. These strategies are paying off. During the first quarter of 2012, Kimberly Clark delivered 14% growth in earnings from a year earlier to $1.24 per share. Analysts look for at least 7% earnings growth this year and next year.    

Kimberly Clark has a 40-year track record of dividend growth. The last increase was 6% in April to a $2.96 annual dividend yielding about 3.5%. Dividend growth has averaged 7% a year in the past five years. Payout is a bit high at 65% of earnings, but easily supported by cash flow, which at $2.2 billion in 2011 was more than twice the dividends paid. 

3. AT&T Inc. (NYSE: T)
Beta: 0.4  
Yield: 5%
This giant telecom owns the nation’s largest Wi-Fi network, the fastest mobile broadband system and is a leading provider of wireless, Wi-Fi, high-speed Internet, voice and cloud-based services. In 2010, earnings improved 60% from the previous year to $3.35 per share, but AT&T took huge non-cash charges in 2011 for terminating its T-Mobile takeover bid and writing-down assets that cut earnings to just $0.66 per share. 

This year, AT&T appears to be back on track. The company is benefiting from upgrades to its 4G network and soaring adoption rates for smartphones and mobile tablets. Its 4G network provides download times for new smartphones that are three times faster than other carrier networks. In addition, AT&T posted record smartphone sales of 5.5 million units in the first quarter of 2012 and a 70% year-over-year improvement in tablet sales. As a result, earnings rose 5% to $0.60 per share, from $0.57 in the first quarter of 2011. Analysts target at least 9% earnings growth this year and 10% growth in each of the next five years.

AT&T’s cash flow has been rock-solid at nearly $36 billion a year and provides better than three-fold coverage of the dividend. The company has hiked dividends 29 years in a row, including a 2% increase in February to a $1.76 annual rate. Shares are yielding about 5%.

Risks to Consider: Because all three stocks are less volatile than the overall market, they can also underperform during a market rally. Also, it’s important to keep in mind that Abbott’s upcoming split will change the characteristics of the stock.

Action to Take –> Because of their low betas, these three stocks appear to be less risky than the market, and they are living up to expectations so far in 2012. While the S&P 500 has returned only 4% in the past 12 months, AT&T has returned 13%, Abbott has delivered 20% and Kimberly Clark has returned 25%.

My top pick overall is Abbott, because I think splitting the company could push its overall market value higher. AT&T and Kimberly Clark are also attractive based on superior safety and rich yields. All three stocks are appealing holdings for risk-adverse investors.

P.S. —  Amy Calistri has developed a portfolio of dividend stocks like these that holds up remarkably well in down markets. For example, in the sell off last year the S&P 500 lost 5.3% in August alone. Despite all the turmoil, Amy’s Daily Paycheck portfolio fell just 1.0% during the month. To learn more about Amy’s strategy — including a few more high-yield picks she likes — you can visit this link to read more.