Safe stocks aren’t always obvious. There are plenty of big-name companies that have scale but no growth. Also, there are plenty of high-dividend stocks that pay 5% or more only because their share price keeps dropping. Other stocks may hang tough in the tough times, but lag stubbornly behind when the market revs up.
So how do you identify safe stocks that will protect you in a short-term market downturn, but not leave profits on the table in the long-run?
My recipe for safe stocks is simple. I want three things:
- An established business with great cash flow
- Protection from cyclical downturns in demand or consumer spending
- A modest dividend to pay you even if the broader S&P 500 goes nowhere
Based on these three criteria — as well as standard demands like a fair valuation and decent earnings performance — I’ve identified seven picks that are worth a look.
Safe Stock #1 – Medical Properties Trust (MPW)
Dividend Yield: 7.2%
My colleague Aaron Levitt called out this bargain-priced real estate investment trust in a recent article, and for good reason. Medical Properties Trust, Inc. (NYSE:MPW) is a fast-growing REIT seeing brisk expansion of its funds from operations — the most important measure we can get from this special class of tax-sheltered companies.
That reliable and growing flow of cash also helps fuel reliable and growing dividends, to the tune of 7.2% currently.
But it’s not just the income potential that’s worth a look here. A big investment theme I’ve pitched here at InvestorPlace is the power of healthcare. The reasons are pretty simple: Aging baby boomers are increasing demand for care in the U.S., inflationary trends guarantee pricing power in the sector, and even in an economic downturn you’ll see Americans cut back on everything but their healthcare.
MPW is well-positioned to capitalize on this trend thanks to its ownership of community hospitals and acute-care centers — and a recent acquisition of 11 more facilities will certainly boost its numbers in the year ahead.
Safe Stock #2 – Altria (MO)
Dividend Yield: 4.2%
Altria Group Inc (NYSE:MO) may strike some as one of those no-growth companies I warned against just a moment ago. However, this pick is not just a dividend stock; consider that over the past five years, it has actually outperformed the S&P 500 in share price performance alone thanks to aggressive buybacks and shrewd management of profitability.
And of course, MO stock is a go-to for dividend investors after 48 consecutive years of increases in its payout. Those increases aren’t a penny here and there, either –as evidenced most recently with an 8% bump in 2017 from 61 cents to 66 cents.
Yes, traditional tobacco products are on the outs. But keep in mind that Altria is not merely Philip Morris USA — the name behind iconic cigarette brands like Marlboro and Parliament. Altria also dabbles in smokeless products and even wines via producer Ste. Michelle. This provides an added level of long-term stability — even though, to be frank, I don’t see cigarettes ever going away completely in my lifetime.
Shares haven’t done much lately in 2017, but with a forward price-to-earnings ratio of less than 18 and reliable profit growth ahead in 2018, I’d bank on Altria regardless of short-term market trends.
Safe Stock #3 – Diageo (DEO)
Dividend Yield: 2.4%
Diageo plc (ADR) (NYSE:DEO) is a world leader in the spirits business, with mega-brands including Johnnie Walker whisky, Smirnoff vodka, Tanqueray and Guinness beer, among a host of others. And thanks to a focus mainly on liquor, DEO stock has been largely insulated from the shakeup we’ve seen in the beer biz as craft brews have eroded share.
For instance, even as Anheuser Busch InBev NV (ADR) (NYSE:BUD) has struggled since 2015 despite a $200 billion operation with some of the biggest mainline beers on the planet, Diageo has slightly outperformed the market thanks to modest but consistent growth.
As a “sin stock,” Diageo also has the unique benefits of seeing stable or even increased demand during hard times. After all, why give up your cocktails if the market is crashing, hurricanes are bearing down on your house and North Korea is thinking of detonating a nuke?
Safe Stock #4 – Verizon (VZ)
Dividend Yield: 5%
Verizon Communications Inc. (NYSE:VZ) is a safe-haven name investors know and love, for great reason. It is an entrenched telecom in an information age, and the pro-business and anti-regulation regime in Washington right now is hardly going to upend Verizon’s profitable apple cart.
So why Verizon over AT&T Inc. (NYSE:T) or some other similar utility, you might ask?
Well, because sentiment is on the side of VZ stock in a big way lately. In the midst of negativity surrounding its wireless business, Verizon posted a strong revenue beat in July — driven in large part by a robust wireless performance.
The result was a 10%-plus run for VZ in about two weeks. Hardly a sleepy telecom with a run like that, no?
Wireless and internet technologies are a staple of the 21st century economy, and Verizon is going nowhere in the decades to come. Given its great dividend and recent share bounce, the short-term is looking pretty good, too.
Safe Stock #5 – Boeing (BA)
Dividend Yield: 2.4%
Boeing Co (NYSE:BA) doesn’t immediately spring to mind as a safe-haven investment. After all, talk of decreased defense spending in 2016 really weighed on this stock — and as an industrial player, a cyclical downturn in business spending could weigh on its aerospace business in a big way.
However, Boeing is a company that has seen it all. And while the top line has admittedly seen headwinds in recent years, shares have come roaring back in 2017 with a 50% return since Jan. 1 on expectations of a turnaround and a series of impressive earnings beats.
Don’t think that money is all going into the CEO’s pocket, however. After a huge dividend increase earlier this year — from $1.09 per share quarterly to $1.42 — BA is back in the ranks of the most generous income investments. That, coupled with geopolitical unrest — including risks of a conflict with North Korea — will assuredly keep Boeing in favor in Washington for some time.
The combo of a favorable big-picture narrative and improving fundamentals is tough to overlook, particularly now that Boeing yields more than U.S. Treasuries.
Safe Stock #6 – American States Water (AWR)
Dividend Yield: 2.1%
Utilities are often the go-to choice for low-risk investors, and that’s understandable. Companies in highly regulated industries enjoy a high barrier to possible competitors, and most utilities are geographic monopolies to boot.
But some electric utilities are overvalued right now despite the lack of growth. On the other hand, American States Water Co (NYSE:AWR) has a decent yield but a powerful business model that gives it bigger growth opportunities than your conventional electricity generator.
That’s because AWR focuses on water and sewer infrastructure instead of electricity. And as water issues increasingly become a concern — particularly in drought-plagued California, where American States Water is headquartered — there is actually growth in this sector as well as stability.
The icing on the cake is the fact that AWR has increased dividends annually for 63 years — the longest streak of any publicly traded U.S. company — and will continue to deliver reliable payouts on reliable revenue for a long time, no matter what happens in the rest of 2017.
Safe Stock #7 – Procter & Gamble (PG)
Dividend Yield: 3%
You couldn’t have a list of safe-haven investments with out Procter & Gamble Co. (NYSE:PG), one of the most reliable consumer names on the planet.
Powered by amazing brands from Dawn dish soap to Gillette shaving products to Crest toothpaste, P&G has its fingerprints all over the typical household. And best of all for low-risk investors, these products will keep selling no matter what the macro picture is like because people still need to clean their bodies and their kitchens regardless of where the S&P is headed.
The dividend is a big draw, too, with a roughly 60-year streak of annual dividend increases showing P&G is committed to bigger payouts over time.
While growth won’t burn down the house and the valuation of PG stock is in line with the broader market, this safe-haven stock has been tracking the market year-to-date despite its bulletproof nature. That implies you can continue to enjoy market upside while it lasts, and be protected if it doesn’t.
As of this writing, Jeff Reeves does not hold a position in any of the aforementioned securities.