These Stocks Can Give You Shelter From International Storms
Aug 30th 2013 12:32PM
Updated Sep 11th 2013 3:08PM
Geopolitical risk has reared its ugly head once again. This time, the ongoing crises in Syria and Egypt have rattled the international markets and sent many emerging markets down sharply. All the while, the S&P 500 continues to hold up, posting solid year-to-date gains despite the recent dip.
If you're a risk-averse investor who doesn't want to ride out the volatility of international stocks, there are ways to park your cash to ride out the storms. For example, there are stocks within the S&P 500 that derive the vast majority of their sales domestically, meaning these businesses are not in danger of suffering from enhanced geopolitical risk. We'll take an in-depth look at two of them.
The U.S. serves as a safe haven
As violence escalates across the globe, international markets are beginning to reflect the pervasive sense of fear. In particular, the emerging markets, which were once hailed as the next great growth story, have gotten crushed.
Consider that the iShares MSCI Emerging Markets exchange-traded fund is down 15% year to date, which stands opposite to the 15% gain on the S&P 500 Index.
Meanwhile, highly profitable U.S.-based businesses continue to hum along, shrugging off any geopolitical concerns. Tobacco giant Altria Group and drugstore retailer Walgreen derive nearly all their sales from the United States. As a result, they aren't adversely affected by the ongoing international conflicts currently gripping the emerging markets.
Both companies' recent results are indicative of their reliability.
Altria's Marlboro brand continues to be one of the most valuable in the world, and the company's financials reflect this. Altria booked 5% year-over-year growth in diluted earnings per share in the second quarter and 7% growth in diluted EPS over the first half of the year. For the full year, Altria expects adjusted diluted EPS to fall between $2.36 per share and $2.41 per share, representing 7% to 9% growth over 2012.
For its part, Walgreen generated record adjusted earnings in the third quarter of $812 million -- a nearly 30% increase year over year. Impressively, Walgreen racked up $1.4 billion in cash flow from operations in the third quarter. The good news didn't stop there for Walgreen: The drugstore giant posted $5.79 billion in sales in June, representing 2.5% growth year over year.
Strong dividends are an additional margin of safety
These stocks' reliable cash flows and the relative safety of operating within U.S. borders provide some security for investors.
An additional dose of downside protection that these stocks can offer you is a hefty dividend yield. Whereas many international stocks, particularly within the emerging markets, yield very little, these stocks have outsized dividends that compare favorably to the broader market.
Walgreen shareholders have received quarterly dividend payments for 323 consecutive quarters -- a streak spanning more than 80 years. In addition, the company has bumped up its distribution to shareholders for 38 years in a row, and the stock yields 2.6% at recent prices.
Altria has a track record of rewarding shareholders that makes it the gold standard for dividend payers. The company has increased its dividend 46 times in the last 43 years, and it will likely give investors another raise in time for its next quarterly payout. Altria's current yield of 5.6% trounces the roughly 2% yield on the S&P 500.
The bottom line
International headline risk is roiling the global economy once again in what is becoming a recurring pattern. However, you don't need to lose sleep about the seemingly never-ending string of worries coming from across the globe. It's entirely possible to insulate your portfolio against international headline risks.
These stocks generate the vast majority of their sales within the U.S., which certainly isn't experiencing runaway growth but is at least measurably better off than other economies. To provide your portfolio with a much-needed dose of stability, consider these U.S.-only stocks.
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The article These Stocks Can Give You Shelter From International Storms originally appeared on Fool.com.Robert Ciura owns shares of Altria Group. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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