Navigating your investments in a post-Brexit world is a challenge. With the economic cost of the United Kingdom’s departure from the European Union unknown, stocks have become much riskier.
Treasuries and corporate bonds have been responding well, rallying almost across the board. But that trend could quickly reverse if the economic impact of Brexit proves more subtle; not to mention at current yields, the upside is somewhat limited.
So what could work?
A dividend stock. Because a good dividend stock can allow you to both get a dividend yield when times are rough and enjoy an upside if Brexit fears prove to be overblown.
Yet, not all dividend stocks will fit. For a dividend stock to be worth holding under current choppiness, it has to fulfill certain conditions. It must be relatively immune to the impact of Brexit and have an ample cash flow and a relatively low volatility to limit downside risk.
Here are three great dividend stocks to consider until the impact of Brexit concludes.
Exxon Mobil Corporation (XOM): High Dividend With Relative Safety
Yield: 3.36%
True, Exxon Mobil Corporation (XOM) is an oil giant and might not come as an intuitive choice, but it is still well-positioned to survive Brexit and keep up with paying its dividend.
Oil stocks have been hit hard by the collapse in oil price since 2014, and XOM stock has not been exempted. But, after some cost cutting and restructuring, Exxon is well-positioned to weather a storm.
According to Morningstar, XOM stock’s breakeven oil price is $40. That is to say, the price above which Exxon is profitable is merely $40, which is among the lowest in the industry. This means that even if oil will return to $40, XOM can stay afloat and keep up with the dividend.
XOM stock is currently trading at a price-to-earnings multiple of X29, which seems high at first glance , but once we consider Exxon is expected to regain its profitability levels, the case changes.
XOM stock has a dividend yield of 3.36%, and with its low breakeven oil price and considering the demand for energy will not fall of a cliff in the immediate future, it makes Exxon a solid dividend stock in both good and bad times.
U.S. Bancorp (USB): A Bank Focused on the Domestic Market
Yield: 2.56%
U.S. Bancorp (USB) is an America-based bank, highly conservative and mostly focused on traditional banking — aka deposits, loans and mortgages.
USB stock is focused on the U.S. domestic market, unlike its bigger peers such as Citigroup Inc (C) and Bank of America Corp (BAC).
It is the combination of USB’s focus on the U.S. domestic market , its relatively conservative business approach and its lean cost structure that make USB stock a solid choice both under a growth environment and current choppiness.
U.S. Bancorp is currently trading at a low multiple of X12 and has a dividend yield of 2.56%.
Philip Morris International Inc. (PM): Smoke without Fire
Yield: 4.18%
Philip Morris International Inc. (PM) has some risk looming over it – largely of course due to the fact that its main source of revenue — tobacco cigarettes — is one of the leading causes of cancer.
That is a well-known, priced risk, but what is not a risk for PM stock? Brexit, because even if the price of Brexit hits the economy, it’s unlikely cigarette smokers will smoke less, as painful as it may be.
PM stock did have a moderate fall in revenues in 2015 — to $27 billion from $30 billion — but was able to maintain a high level of profitability, with an operating margin of 40% and a net margin of 26%.
At the moment PM stock trades at an X23 P/E with a dividend yield of 4.18%. A high yield with almost no Brexit exposure.
As of this writing, Lior Alkalay did not hold a position in any of the aforementioned securities.
