Think our beloved bull market might be headed to the butcher shop? Here are three stocks that offer safety when good markets turn bad.
In fact, you could argue they’re a better move than the traditional first-choice safe haven... Uncle Sam’s debt.
When the world’s economy threatens to shrink, the financial textbooks tell us American Treasurys are the safest bet. But the history books tell a different story...
That the state’s credit is hardly ever the strongest in the land.
The idea stands true today. While Uncle Sam is certainly good for his word (for now)... there’s a trio of American companies deemed even more reliable.
If you recall, the credit rating agency Standard and Poor’s shocked the world when it downgraded America’s rating in 2011 after Congress battled fiercely over the nation’s borrowing limit.
We went from a coveted AAA rating to AA+.
Yet, in the years since, three American companies have managed to keep the coveted AAA score. They are Johnson & Johnson (NYSE: N:JNJ), Microsoft (Nasdaq: O:MSFT) and Exxon Mobil (NYSE: N:XOM). They represent the strongest balance sheets in the land.
All three pay an annual dividend of more than 2.5%... far better than anything you’ll get from Uncle Sam.
Now, to be clear, the AAA credit rating represents the companies’ debt, not the value or safety of their equity. So let’s take a look at the three stocks to see how they hold up when the markets head south.
Johnson & Johnson
With one of the most stable businesses and balance sheets in corporate America, it’s no wonder this mega-conglomerate gets two thumbs up from the ratings agency.
Johnson & Johnson is a strong recession-resistant play thanks to its product lineup that’s largely insulated from the whims of a volatile economy. Remember, folks still need Tylenol and Band-Aids even when their paychecks shrink.
A quick look at a 10-year chart shows the company offers protection in a storm (it solidly outpaced the S&P during every major downturn over the last decade), but its shares don’t hesitate to rise when the sun comes out.
For income investors, there’s plenty of safety. The company has raised its dividend every year since 1963.
In other words, today’s yield of 2.9% is plenty safe.
Microsoft
Again, when it comes to balance sheets, Microsoft certainly knows how to impress a ratings agency. With more than $98 billion worth of cash and liquid short-term investments in its coffers compared to just $95 billion in total (short- and long-term) liabilities, Microsoft’s debtors have nothing to worry about.
It’s a similar story for its shareholders. While the company’s high-flying, wealth-spewing days are behind it, there’s no doubt the tech giant’s shares will shield you from disaster. Over the last decade, it’s had no problem outpacing the markets.
As for its dividend... Microsoft doesn’t have the same deep history as Johnson & Johnson, but its dividend has grown every year since 2004.
At 2.6%, it’s not a huge stream of income, but you can be sure the check won’t bounce.
Exxon Mobil
There’s no doubt Exxon is the most interesting and eyebrow-raising company of the AAA trio. And its 3.75% dividend yield is certainly the highest.
In a market that’s been dragged lower due to the devastation in the once-dominating oil patch, it’s tough to view a major energy company as a safe haven.
But there’s no doubt about Exxon’s long-term power.
The company’s 10-year chart clearly shows the damage plunging oil prices have levied on the global giant’s stock - it’s significantly underperformed the S&P over the last year. But the chart also shows shares don’t lay low for long. Every dip is followed by a rebound.
But the real story is that dividend. With 33 consecutive years of growth behind it, the company’s quarterly payout has a reliability few folks would question.
Of the three companies with a AAA bond rating, Exxon’s shares sport the most risk... by far. But they also offer the most potential reward - with an ultra-safe 3.75% dividend to help smooth short-term volatility.
There’s no debating the market got off to a rough start for the year. And there are few analysts who expect the rip-roaring bull market to continue. So if you’re looking for a safe way to get through the months ahead, the companies with the highest-rated balance sheets make good sense.
They might even be safer than Uncle Sam.