by Jeff Reeves | October 9, 2013 7:00 am
Americans despise Congress. Just look at the measly 11% approval rating for lawmakers right now.
And I surely don’t have to commiserate with you over why that’s so, or why the losers in Washington deserve our ire — Democrats and Republicans alike. After all, one thing investors of all political persuasions can agree upon is that the government shutdown and debt ceiling debacle is at risking lasting harm to portfolios.
So as we hunker down for more bluster from both sides of the aisle and the endless cycle of finger-pointing press conferences, stock market investors should also consider moving their money into stable stocks and low-risk investments that can withstand whatever comes their way in the next several months — and beyond.
Here are nine such stable investments to survive Congressional chaos: Universal Health Realty Trust (UHT), Public Service Enterprise (PEG), Clorox (CLX), Chevron (CVX), Amgen (AMGN), Consolidated Edison (ED), Dupont (DD), Procter & Gamble (PG) and Philip Morris (PM).
Say what you want about lawmakers and Obamacare, but one sector that is seeing big growth and little risk of a slowdown in the long-term is healthcare. The demographic push of aging Baby Boomers continues to create more “customers” for medical facilities and the healthcare system in general — regardless of who is footing the bill.
That’s where Universal Health Realty Trust (UHT) comes in. This stable stock is a real estate investment trust that invests in hospitals, surgery centers, medical office buildings and other related businesses.
Best of all, its REIT status means guaranteed dividends, because the stock must deliver 90% of its taxable income back to shareholders according to U.S. tax law.
UHT is a small player, at only $550 million in market cap, and operates in 15 states with less than 60 properties in its investment portfolio. However, it has paid dividends for 26 years and has increased its dividend like clockwork every year even if it is only a half-cent bump annually. The dividend has jumped 28% in the last decade and the current yield at UHT is 6.0%.
Shares have underperformed so far this year, with an 18% decline in the stock thanks to a collapse for many REIT stocks in the spring … but shares have stabilized and appear to be a good bargain investment.
Boasting a nice 4.4% dividend yield, the utility stock Public Service Enterprise Group (PEG) is a lesser-known but very attractive play for investors. The company serves the Mid-Atlantic region and has a valuation of about $16 billion.
Consider that right now, the stock has a beta of 0.15 — meaning that it moves much slower than the rest of the market in either direction. Detractors warn that utilities will never set off the fireworks with a breakout week or month, but if you’re a low-risk dividend investor, that’s actually not a weakness. Should the market somehow hit a major snag, PEG will stay much more stable than other picks.
Also, despite its big yield, the payout ratio for PEG is less than 50% of projected fiscal 2013 earnings. This is the mandate not just for sustained dividends, but growing payouts, too.
The icing on the cake is that utility stocks like PEG are virtual monopolies in their geographic region and are highly regulated, which prevents disruption to their business. Considering the strong baseline demand and the lack of competition, you can’t get more low-risk than a utility like Public Service Enterprise.
Clorox (CLX) is one of the most powerful consumer brands in the world, with a name that’s synonymous with household bleach and cleaning products. And since folks have to keep house in both good times and bad, it’s safe to say that Clorox stock is going to keep squeaky clean no matter what kind of muck the broader economy has to plod through.
It’s not just the U.S. either, with manufacturing facilities in two dozen nations and more than 100 markets served worldwide to add diversity to the revenue stream.
An added benefit that comes from a multinational corporation is that if the U.S. does find itself in fiscal trouble, the weakening dollar will boost sales abroad and create a currency tailwind to lift earnings. That’s cold comfort if Congress ruins the economy, yes, but at least it’s something.
This stable stock has paid dividends since 1968, and the payout has increased 160% since 2003. The current yield is 3.5%, and shares have mostly tracked the market in 2013.
Chevron (CVX) is a bit of a cyclical play thanks to its exposure to energy demand, but when it comes to entrenched companies you’ll find it hard to identify another company with a moat as wide as CVX’s. With a $220 billion market cap, $43 billion in cash in the bank and almost $6 billion in annual operating cash flow, this is a stock that is as stable as they come.
Worldwide production of about 2.6 million barrels of oil and gas per day will do that for you.
That reliable production and scale provides for reliable dividends, too. Chevron has paid out some form of dividend since 1912 and increases its distributions like clockwork. Adjusted for a stock split, CVX dividends are up 170% in the last decade to give shares a current yield of 3.2%.
While CVX may not be as big as Exxon (XOM), it does seem to be more fairly valued based on forward earnings — and also appears more stable, logging a 8% gain YTD in 2013 vs. a small decline for XOM stock.
Biotechnology stock Amgen (AMGN) is another healthcare stock worth exploring to cash in on the Baby Boomers creating increased demand for specific products and treatments. Amgen focuses on cancer, kidney disease and arthritis, so it will have no shortage of sales in the coming years regardless of the demographic trends here.
But it’s not just the recession-proof appeal that makes Amgen crash-proof. Many folks think that tech stocks are always the big cash hoarders, but at the end of June, Amgen reported an amazing $22 billion in cash and short-term investments. That’s more than enough to fund research to keep its drug pipeline going, snap up smaller biotech firms and keep humming along.
There’s also hope for continued dividend increases. Though the yield in Amgen is just 1.8%, the payout of $1.88 annually is just 22% of fiscal 2014 earnings — not only sustainable, but ripe for a bump higher. Amgen boosted its payout 30% in 2013 over 2012’s rate, and investors can bank on that trend continuing going forward.
With stable positioning as a healthcare stock serving older Americans and with potential dividend upside, Amgen is a very safe bet. The fact that the stock is up 25% YTD in 2013 to outperform the S&P is the icing on the cake.
Consolidated Edison (ED) hasn’t really gone anywhere since early 2012 as the market has gotten a bit more “risk on.”
But investors in utility stocks like ConEd shouldn’t ever expect big fireworks and huge share price appreciation — and when times are tough, there are worse things in the world than simply hanging tough.
After all, utilities are highly regulated companies with geographic monopolies. It’s almost impossible for them to grow, short of acquiring a neighboring electricity provider.
But as a low-risk investment, this barrier to growth should be seen as a high wall to competition, too. After all, when is the last time you heard of a new utility company rolling into town and poaching the old power provider’s customers?
ConEd is an entrenched and well-oiled dividend machine. The company has paid dividends in some form since 1885, and payouts are very sustainable at just 64% of next year’s earnings. The current yield for ED is 4.4%.
DuPont (DD) is hardly a sexy stock, providing chemicals to businesses across a host of industries — from healthcare to manufacturing to agriculture. But the performance of DD stock in 2013 with a 28% gain is proof positive that this stable stock is going strong.
The diversified nature of DuPont helps insulate it from volatility because it serves so many different segments of the economy, both at home in the U.S. and in overseas market. With a $55 billion market cap and almost $5 billion in operating cash flow, DuPont is a very stable and reliable business.
And when it comes to dividends, DD has paid back shareholders since 1904 and enjoys a dividend yield of 3.1% right now. That dividend could move higher, too, with a payout ratio of less than 50% of FY2013 earnings.
Procter & Gamble (PG) started 2013 with a bang, but has lagged the market in 2013 as sexier momentum plays have come into favor. And when activist investor Bill Ackman dumped a majority of shares in August as the Wall Street party started to lose steam in general, shares softened up even more.
But long-term investors should rest comfortably knowing P&G boasts a bulletproof lineup of consumer products that include Duracell batteries, Gillette razors, Head & Shoulders shampoo and Pampers diapers among other goods.
And if you’re worried about a consumer downturn as the government shutdown guts spending, PG stock is a great take to place shelter. Staples like personal care products are recession-proof and will remain in demand even if discretionary spending rolls back.
Throw in the fact that the stock yields more than 3% and has paid dividends since 1891, and you’ve got a recipe for a buy-and-hold gem.
Tobacco stocks aren’t exactly growth investments, since cigarettes are highly regulated and clearly unhealthy for you. However, there’s a reliable revenue stream there as a small group of consumers keep chain-smoking tobacco stocks to decent profits.
A top dividend payer in this space is Philip Morris (PM), which is flat over the last 12 months, but boasts a smoking 5.5% yield.
Growth is admittedly not on the way, but investors looking simply to take shelter from the chaos in Congress can have confidence that Altria isn’t going anywhere thanks to the high barriers to entry in the tobacco biz and the big-time brands it owns, led by the world’s No. 1 seller, Marlboro.
Revenue is stable, and dividends are rich and sustainable at Philip Morris at a payout ratio of about 63% — even after a nearly 11% increase to dividends in September.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.
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