When the market hits a rough patch, you’ll be happy to have these dividend stalwarts in your portfolio.
They’re some of the most reliable dividend-paying stocks in the world…
Each one has a national reputation for quality, reliability and the ability to operate profitably in both good times and bad.
With economic growth stalling, job growth in the U.S. slowing and Europe’s debt crisis seemingly never-ending… more and more investors are turning to this elite sector of the market for steady-income.
These dividend stalwarts are arguably some of the safest stocks in the S&P 500.
But not all blue-chip stocks are created equal… as we were reminded last quarter, when even the most reliable dividend-payers can be at risk in this market.
This was especially true for Coca-Cola (NYSE: KO), McDonald’s (NYSE: MCD), and Johnson & Johnson (NYSE: JNJ).
All of these bellwethers missed earnings expectations — and all for the same reason. These large multinational companies all had lower earnings because of the strength of the U.S. dollar…
The U.S. economy may not be firing on all cylinders, but the United States looks like a Formula One racecar compared with the rest of the world — especially Europe.
As a result, investors have flocked into U.S. Treasuries and the U.S. dollar for safety. Likewise, investors are bailing out of the euro. Just take a look at the chart below.
The chart above shows the performance of the dollar versus the euro over the last year. As you can see, the dollar is up roughly thirty percent against the euro since August… a major move for a currency pair.
This is a problem for large multinational businesses in America…
Even if these U.S. based companies sell the same amount of goods to Europe, their revenues, priced in dollars, will be lower.
Companies can mitigate some of their currency risk by hedging their overseas sales with derivatives, but that still doesn’t eliminate the bigger issue.
That’s because a strong dollar also means that European consumers now have to spend more euros to buy the same U.S. products that they did last year. As a result, Europeans may buy fewer U.S. goods and/or opt for relatively less expensive domestic goods.
For companies like Johnson & Johnson and Coca-Cola, that could be a major challenge in the coming months. Both companies earn a bulk of their revenue from Europe. If the dollar stays strong relative to the euro, both of these businesses may continue to see declining sales volumes.
But there were some stocks that were able to buck the trend in the second quarter. Two of the blue-chips in my Daily Paycheck Portfolio — Altria (NYSE: MO) and AT&T (NYSE: T) — blew past analysts’ estimates.
What’s they’re advantage?
It’s simple… both of these companies produce goods and services that are only available in the United States. They don’t have the same foreign currency exposure — all their revenues start out, and end up, as U.S. dollars.
Of course every investment carries risk — even large, U.S. based corporations with no exposure to Europe.
But in general, blue-chip stocks are some of the safest investments to hold in the face of uncertainty. And when currency risks flare, the best place to be is in those titans of industry that cater only to the U.S. market.
– Amy Calistri
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Disclosure: StreetAuthority owns shares of T and MO as part of the company’s various “real-money” portfolios. In accordance with company policies, StreetAuthority always provides readers with at least 48 hours advance notice before buying or selling any securities in any “real money” model portfolio. Members of our staff are restricted from buying or selling any securities for two weeks after being featured in our advisories or on our website, as monitored by our compliance officer.