News Analysis date published New: 
Thursday, August 23, 2012 - 09:00
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Wednesday, August 29, 2012 - 13:56
New Date last updated: 
Thursday, August 23, 2012 - 09:00

The Safest Dividend Stocks In The S&P 500

Thursday, August 23, 2012 9:00 AM

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 United States slowing and Europe's debt crisis seemingly never-ending... more investors are turning to this elite sector of the market for steady-income.

I'm talking about blue-chips... stocks like Coca-Cola (NYSE: KO) and General Electric (NYSE: GE). 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 race car 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 revenue, 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 European consumers now have to spend more euros to buy the same U.S. products 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 their advantage?

It's simple... both of these companies produce goods and services that only available in the United States. They don't have the same foreign currency exposure -- all their revenue starts out, and ends up, as U.S. dollars.

Risks to Consider: Of course, every investment carries risk -- even large, U.S. based corporations with no exposure to Europe.

Action to Take -- > 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.

P.S. -- Amy Calistri has developed a portfolio of dividend stocks like these that holds up remarkably well in down markets. For example, in the sell off last year the S&P 500 lost 5.3% in August alone. Despite all the turmoil, Amy's Daily Paycheck portfolio fell just 1.0% during the month. To learn more about Amy's strategy -- including a few more high-yield picks she likes -- you can visit this link to read more.

Amy Calistri does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC owns shares of KO, JNJ in one or more of its “real money” portfolios.