AAA-Rated Stocks: Better Than U.S. Debt

Credit Rating DowngradeBack in August 2011, Standard & Poor’s lowered the U.S. credit rating from the gold standard of AAA down to AA- and placed the country on its creditwatch list. The downgrade was a significant event, although fears that the system would collapse from the action proved unfounded.

As we slowly close in on that ignominious one-year anniversary, what has changed?

Well, the markets are somewhat stronger now but are showing no real direction, and the economy continues to muck around, looking for some way to sustain its recovery. Indeed, heading into the summer, election season and fall budget session, it’s unlikely we’ve earned that AAA rating back.

The world still views the U.S. as the best economy and risk out there, but is there anything that’s better (read: less risky) than U.S. debt?

Why, yes, there is. Four AAA-rated companies, conveniently located on American soil: ADP (NYSE:ADP), Johnson & Johnson (NYSE:JNJ), Microsoft (NASDAQ:MSFT) and Exxon Mobil (NYSE:XOM). More important, with the 10-year Treasury yielding 1.65%, these stocks not only have better credit than the U.S., but they have dividend yields that represent up to 224 basis points of premium over the T-note.

Does the premium and rating mean the companies are immune from downward stock price moves? Of course not. But these dividend stocks all have steady businesses and all also have the potential for capital gains. With that in mind, let’s take a look at these four AAA-rated stocks that are better buys than U.S. debt:


ADPADP (NYSE:ADP) simply provides business outsourcing solutions. Yeah, and Apple (NASDAQ:AAPL) just makes computers.

ADP offers a range of human resource, payroll, tax and benefits administration products. The company also provides integrated computing services to equipment manufacturers and retailers. Make no mistake: These guys are fist-deep in the technology-based age of information and services.

ADP has the lowest market cap of our AAA-rated companies at $26 billion, but smaller does not mean weaker. A 13% profit margin, 22% return on equity, $1.9 billion in operating cash flow, $2 billion in cash and a paltry debt load provide a solid fundamental base. And it’s a dependable dividend stock — a steady 40-cent quarterly payout provides an attractive yield around 3%.

Johnson & Johnson

Johnson & Johnson (NYSE:JNJ)Quick quiz: What was the last year Johnson & Johnson (NYSE:JNJ) did not raise its dividend? 1971, when it had yet to start paying one. With this year’s dividend hike, JNJ has been increasing payouts for 50 straight years, putting it among the most dependable dividend stocks.

J&J operates within three internal segments — consumer, pharmaceutical and medical devices — and you know them through brand names like Listerine, Acuvue and Johnson’s Baby shampoo, among others.

With a market cap of $171 billion, Johnson & Johnson is one of the most stable and consistent earnings growth companies in the U.S. with a huge global market reach. A 16% profit margin and similar return on equity, $33 billion in cash and $15 billion in operating cash flow position JNJ for continued expansion. Slow and steady is the way JNJ rolls — to the tune of a 61-cent quarterly dividend, good for a fantastic 3.9% yield.


Microsoft (NASDAQ:MSFT) is just another word for software. The Windows operating system and the Office products suite it spawned remain the most ubiquitous software products in the world, despite the best efforts of the rest of the planet to get people and businesses to adopt a different platform.

Microsoft also has the country’s No. 2 Internet search engine, Bing, and has moved into cloud-based computing services with the Windows Live Essentials suite. With other efforts aimed at phones, video games and online advertising, there is virtually no sandbox in which Microsoft doesn’t play.

With a $244 billion valuation, Microsoft is the third-largest company in the U.S. by market capitalization. It boasts a 32% profit margin, 38% return on equity, $58 billion in cash and $30 billion in operating cash flow, all built on a measly $13 billion in debt.

MSFT is a little slow in doling out some of that lucre to shareholders in the form of dividends, but give the company credit for at least increasing the payout steadily — and appreciate your 2.7% yield.

Exxon Mobil

Exxon Mobil Corp. (NYSE:XOM)Exxon Mobil (NYSE:XOM) is to the oil industry as the U.S. is to the world: really, really big and important.

XOM is perhaps the world’s foremost energy exploration and production company. It manages to wring cost and margin out of every price p0int in the supply chain, and it works to stay ahead of the competition at every turn. And though your first thoughts turn to oil, Exxon is now the globe’s largest producer of natural gas.

Exxon also is run on a shoestring-tight budget, which is why this $373 billion company pumps out a 9% profit margin in a difficult market, a whopping 25% return on equity, has an $18 billion cash war chest and an astounding $56 billion in operating cash flow. This dependable dividends stock rewards investors every year, and the stock now pays out $2.28 per share for a yield of 2.85%.

Marc Bastow is an Assistant Editor at As of this writing, he was long MSFT, JNJ and XOM.

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